Gold

Gold is shining, Trading at an All Time High. What should Retail Investors do?

Gold

Importance of Diversification in Investment cannot be underestimated. We have talked about it a lot. Right Proportion of Asset Mix i.e. Equity, Debt, Gold, Cash etc. is required as per the Risk appetite.

In 2013, Gold was around Rs. 29600/- (per 10 grams) and in 2023 till date Gold has crossed Rs. 61000/- (per 10 grams) i.e. it is trading at an all-time high.

Gold asset class has provided around 7.50% p.a. which is lesser as compared to Equity & certain categories of Debt.

However, below are a few reasons why retail investors should not ignore gold in their portfolio.

Hedge against Inflation:

Inflation is very important factor in any investment to analyze real returns. Impact of Inflation reduces the value of money and buying power. If your investment does not beat inflation, it is possible that you may not be able to save enough to provide for your financial goals.

Investing in Gold is a hedge against inflation. Hedge simply means it protects and preserves the buying power.

Higher Liquidity:

Liquidity is another benefit that is offered by Gold. Unlike some other asset classes like Real Estate, selling Gold in time of need is not very difficult, be it online or physical form. Within a day, you can liquidate gold.

Diversification:

Investing in different asset classes reduces the overall investment risk. As there are very less chances that all the asset classes would underperform at the same time. It is observed that whenever the Equity underperforms, gold shines, providing the balance in the portfolio. Further, whenever there is a war like situation, gold performs well.

Investing through Online Mode:

Investors can invest in Gold through online mode as well.

Purchasing Gold jewelry is not a smart decision for investment purposes. It is due to impurities and jewelry-making charges. Hence, at the time of sale, investors get lower value, making returns on investment lower. Hence, investing through online mode is a good choice. In online mode, choices like digital gold, Gold ETFs, or Gold Mutual funds, Sovereign gold bonds are available.

Each option has its merits & demerits. You can select the one that suits your risk appetite and investment policy.

One of the main advantages of buying gold online is that it abolishes the risk of security & purity problems that are present in buying physical gold.

Investment Options in Gold:

Physical Gold:

We all know the forms of physical gold i.e. jewelry, bar and coins. From an investment perspective, bars and coins are preferred as there are no making charges involved in the said form.

Digital Gold:

An option of buying e-gold online through an exchange, just like Company Shares (Equity) is available. In this option, the gold is held in the DEMAT account like other dematerialized assets.

Gold ETFs:

ETF are Exchange Traded Funds. Gold ETFs are nothing but mutual funds that invest in physical gold. These can be traded on the stock exchanges.

Gold Mutual Funds:

Investors can buy Gold Mutual Funds just like other Equity or Debt Mutual Funds. DEMAT account is not mandatory for Gold Mutual Funds unlike Gold ETF and Digital Gold.

Sovereign gold bonds:

Sovereign Gold Bonds is a scheme launched by the Government. These Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram. The tenor of the Bond is 8 years with exit option in 5th, 6th and 7th year, to be exercised on the interest payment dates. Further, the investors will get at a fixed rate of 2.50% per annum payable semi-annually on the nominal value.

How much money should Retail Investors invest in Gold?

 Investing 5% to 10% of the total portfolio is considered a good allocation towards gold.

Conclusion:

As an integral part of our culture, investment of gold is a good option to invest. In recent times as well, gold has not lost its shine. Further, just like other investments, investors do not sell Gold easily, they tend to hold it for a longer term, increasing the chance of earning higher returns. For a long-term perspective, investment in gold can be definitely considered.

 

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