Gold – More than just vanity

People have always had an eye for gold. After all, in Indian context, it is an emotion. But as an investment, it is posing a great opportunity that every investor can grab hold of.

Why go for the bling?

Well, the it is an attractive investment avenue for investors due to its high level of liquidity. And, of course, it is a luxury which people want to get hold of. The return on this precious metal has mostly been in line with the inflation rate.

Historic return of gold against inflation rates
Return on Gold vs Inflation rate

In addition to that, it has been the “go to” space for the investor to hedge their exposure to equity. Hedge? It means this investment is to set off the risks of equity investment. Let’s go to the drawing board.

Compare returns on gold against Nifty
Gold prices vs Nifty

How to add gold in your portfolio?

In India, there are three ways:

  • Physical: The conventional method of “golden” investing is the purchase of coins, bullions or jewelries. You get a direct exposure to the market rates. However, the fly in the ointment is that you will have to hold them physically. This leaves you highly exposed to theft or burglary.
  • Gold ETF: One of the modern ways of investing is putting your funds in the hands of the Exchange Traded Funds. These type of funds invest in the yellow metal and are traded in the stock market. Even here, there is a direct exposure to market prices. However, you won’t be holding physically, rather only in your demat account.
Global data on gold production, gold demand, gold reserve levels
Global data on gold production, gold demand, gold reserve levels
  • Gold Funds: Here, you invest in a mutual fund which invests in gold mining companies. The deal breaker here is that you will have indirect exposure to the price changes in the market. This as well is one way of investing where there is no need to have physical possession.
  • Sovereign Gold Bonds (SGB): Investing in SGB is one of the safest modes of investing. They are issued by the Reserve Bank of India on behalf of the Government. You will buy gram-denominated bonds which carry an interest rate of 2.50% – 2.75% per annum. An individual investor can make investments of 4 kilograms. The bonds can be redeemed at the prevailing market price.

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