Gold plays very significant and crucial role in our society it has financial values and more than that it has cultural values in Indian society . India is the largest consumer of gold but gold potential is not getting utilized at its fullest because gold is stored in lockers or homes, it is not deployed to create wealth . In India people prefer physical gold and that’s biggest drawback of gold holdings. In this article we will explore best way of holding gold and using it as an asset class.
Many investors keep their 3-5% capital in Gold as part of their portfolio diversification. Portfolio diversification is the process of investing your money in different asset classes and securities in order to minimize the overall risk of the portfolio. Although investing in Gold is not considered good because it just beats inflation and doesn’t create any wealth for you. To simplify it, just suppose you bought gold worth $1000 and after 20 years it worth $2000 but if you take inflation for these 20 years in consideration, you haven’t created any significant wealth you just managed to beat inflation.
Here is a chart showing gold price/gm for 20 years period. Inflation adjusted cost of gold in year 2000 will be very little higher to gold price in year 2020. In other words INR 500 in year 2000 and INR 4500 in year 2020 is not very attractive.
Even after this, Indians liking for gold is not decreasing and they keep buying it in physical form and then whole life either they pay locker fee to any locker service provider or keep gold at home and always worry for it. So again if you see, all hardships and anxiety with gold ownership is not worth it. It is true that gold is ultimate wealth barometer but owning gold in large quantity is not a wise decision but if someone has gold in large quantity they can leverage on that gold and create wealth. Again to simplify it, if you have gold worth $1000 today, get leverage on it and invest $1000 in a true wealth creation instrument like equity or mutual funds or other instrument of your liking and you can make $2000 which your gold can’t do.
In Indian culture leveraging gold is not easy, selling or getting loan or leverage against gold is considered bad and people feel ashamed doing it, so what is solution? There are many ways you can invest in gold:
1. Buy ETF Gold Funds (ETFs)
2. Invest in Sovereign Gold Bond (SGBs)
3. Buy Gold Mutual Funds
4. Buy Digital Gold
Buying exchange traded funds (ETFs) gold gives you freedom to buying and selling in seconds you can buy when you want and sell as well. Here are some Gold ETF listed on NSE.
Sovereign Gold Bonds (SGBs) are another safe and easy way for gold investment, SGBs are guaranteed by Governments and gives return based on gold prices but they comes with lock-in period. Different SGBs can have different time frame.
If you prefer mutual fund way of investment, you can hold Gold based mutual funds where it gives returns based on gold price movement and it is the easiest way to get into gold buying.
Also, many online portals authorized buy government where you can buy gold and keep it there without worrying about gold safety and storage. You can buy gold online from GoldRushOnline, PayTm etc.
To conclude it we can say that gold is not very attractive instrument for wealth creation but it is very safe and stable instrument. Gold can help you to beat inflation or at some extent help in portfolio diversification. People should not hoard gold in physical form and should go with only bare minimum need to need basis. If possible leverage gold for investing in more attractive instruments and if you want to just buy gold, buy it digitally so that you have not to worry protecting it and you can sell on your will.
Disclaimer: The opinions expressed in the Blog are for general informational and educational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.
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