During the auspicious occasion of Makar Sankranti, Indians look to decorate their wallets by investing in gold, believing it to be a piety, during festivals. As we all know gold buying is not new to Indian households. Research indicates that India has the largest domestic gold reserves in the world. Gold is bought on special occasions such as weddings and births. Although gold is a physical asset much like real estate, its luster has not been dulled by financial or digital investment assets.
Investing in gold is still going strong, and for good reason.
Why should you invest in gold?
Since gold is a primary commodity, it becomes more expensive as costs rise, providing lucrative returns in a bloated economy.
Gold is a currency in itself. Even when you don’t have an acceptable paper currency, gold can be exchanged for a wide range of utilities. This makes gold especially useful when a currency is crashing or toppling.
Gold is a precious and rare metal. With limited scope to find more, gold will only become more valuable in the future. Moreover, gold cannot be produced industrially. Low supply and high demand have always led to higher prices, which makes gold investing a good long-term wealth valuation tool.
One can easily buy and sell gold slabs, making it a very flexible and liquid investment.
Gold finds its use in many industries such as aerospace engineering and electronics, and all of these shows are big industries. This ensures that gold will always be in demand. Moreover, gold can be used as jewelry as well.
For those who invest heavily in the stock market, gold can serve as a safety cushion for emergencies when the stock market crashes. It is well known that gold investments work best during bear markets.
How to invest in gold?
There are different ways to make investments in gold. Here are the top five ways to invest in gold and jewelry in India:
Buying physical gold:
Gold bars or coins are one way to do this. However, this may come with the concern of misplacing or losing the metal. Also, you will need enough storage space.
Gold ETFs or Gold Exchange Traded Funds:
ETFs are listed on the stock exchange and can be bought and sold by investors in the stock market. Gold ETFs also denote owning real gold with a purity of 99.95 percent, which can be converted into physical assets when 0.5-1 kg of gold units are reached.
A gold mutual fund is a scheme that invests in gold ETFs and maps the movement of ETFs to determine returns. This is more suitable for gold investment which is done only for financial benefits and not for actual gold possession. In gold fund investing, one does not have to buy at least 1 gm which is required by ETFs. SIP options start from INR 1,000.
National Spot Exchange Limited (NSEL) launched electronic gold to enable investors to buy gold in smaller denominations (1 mg, 2 mg, etc.). A separate Demat account is needed for electronic gold investments and gold reflects Indian gold market prices. This contrasts with ETFs which are often influenced by the international market as well.
Sovereign Gold Bonds:
The Government of India and the Reserve Bank of India launched Sovereign Gold Bonds, which are government securities that issue gold in denominations of 1 gram. You can earn a fixed interest each fiscal year in cash at maturity.
Gold vs. Cryptocurrencies: Which is the Best Investment?
Cryptocurrency has emerged as a new financial asset that you need to acquire. It is a blockchain powered currency that facilitates peer-to-peer transactions and eliminates the need for an intermediary. Cryptocurrencies pose various threats to fiat currencies, they are transparent, calculated and of limited supply due to the complexities of “mining”.
In the recent past, cryptocurrencies such as Bitcoin, Dogecoin, and Ripple have generated returns of over 100 percent.
Cryptocurrencies perform best in a bear market and thus provide a haven for investors. Not much different from gold in this aspect! Moreover, Bitcoin has been called “digital gold”.
Here is a comparison of gold and cryptocurrencies for a better understanding.
|Accessibility||Easily accessible to everyone, it has been around for much longer||Requires technical and digital knowledge, not common|
|legitimacy||More secure and transparent||It can be faked using quantum computing|
|It has a physical use, the raw materials required||only coin|
|It cannot be produced in a laboratory, there are limited mines on this planet||Only 21 million bitcoins are in circulation|
|Can be sold online as well as offline||It can be sold online, and offline acceptance is yet to come in most countries|
|Less stock, long-term safe investment||Too new to predict long-term prospects, it is more volatile than gold|
Both of these asset classes are rare, transparent and liquid. Although they are often pitched against each other, we think that they are not rivals but friends. Investing in cryptocurrencies will become more reliable with the advancement of technology.
Gold vs. Mutual Funds: Which is the Best Investment?
Mutual funds are instruments that collect money from various investors and then invest in the stock and bond market to generate returns.
Let’s compare the two.
|Liquidity||Yes||Not if there is a lockout period|
|Relationship with the stock market||Very resistant||directly proportional|
|Minimum investment||You will have to spend over 4000 INR to buy 1 gram of 24 karat gold.||SIP is available with a minimum of INR 500.|
|investment fee||Nothing on physical gold, like mutual funds in the case of gold funds and ETFs||brokerage fees|
|risk factor||less; The value of gold always rises in the long run, given the sharp supply and high demand.||Average|
|yields||stable||Can give more than gold|
Mutual funds are riskier and more volatile, however, this also opens up new avenues for robust growth.
There is no one size fits all when it comes to investing. Consider all of your options before making a decision.
questions and answers
1) Should you invest in gold?
Yes, gold can be a good way to hedge against inflation and bear markets.
2) Are ETFs Better Than Gold Funds?
Gold ETFs allow you to take ownership of gold, while gold mutual funds are only for appreciating money without real ownership of gold. However, gold fund investments are quite affordable, starting at INR 1,000 per month.
3) What are the factors that affect the price of gold in India?
The price of Indian gold changes due to the international gold rate, currency fluctuation between the US dollar and the Indian rupee, and tariffs, among other factors.