The yellow metal has been an all time favorite of Indians and we love to possess gold in physical form all the time. Go to any Indian wedding and you’ll see all the ladies trying to be the best version of Bappi Da, flaunting their necklaces, bangles, rings, nose-pins and what not. (I know because I recently got married).
But as a millennial, we tend to alienate ourselves from this culture of show off. For us, gold may be an instrument of investment more than a social status thing. So the question we ask ourselves, should I buy gold now or wait? Is it the right time to buy gold? Most importantly, how to invest in Gold? Let’s address all these questions:
Should you invest in gold at all?:
As far as gold is concerned, in my opinion everyone should invest a certain percentage of their savings in this instrument. So I follow a 70:20:10 ratio. There is a famous thumb rule of investing 100 (-) your age into equity markets. Therefore, I invest 70% of my savings in equity, 20% in debt instruments and 10% I allocate to gold. Why gold?
- Gold hedges your risk: Gold has historically had a track record of staying strong in uncertain times. In fact, gold can be a safe haven and often picks up during crisis.
- Gold is a highly liquid asset: Imagine being invested in something and counting it in your net worth but never able to utilize that money when you need it the most. Gold will never let you down in that sense. In any form, gold can be liquidated almost instantly.
- Gold is an amazing diversifier: We always hear that we need to diversify our portfolio. Gold tends to complete that quest.
- Good Returns: Gold has tend to give good returns in the past often staying at par with Sensex and beating it when Sensex hits the rock bottom. Infographic below shows this data. You can see for yourself when indices tumble, gold shields your portfolio.
Is it the right time to buy gold?
Don’t try to time the market, rather evaluate your time in the market.
This is a very subjective question depending on your goals. So, if you plan to invest in gold to keep it forever (like most Indian families). There is of course no right time for you. You can go ahead and buy gold and over the years it is bound to appreciate.
For the ones who want to get in and out of this investment, right now with US elections around the corner, Volatility Index (VIX) has crossed 23 (a pretty volatile market). In such situations, gold will probably beat indices being a safe haven. Also with world economy in a recession, rising number of coronavirus cases, vaccine still out of sight till 2021, gold will hold strong. Also, gold is already corrected around 10% from its all time high this year. So, I think if you are considering jumping in, jump in now!
How to invest in Gold?
There are multiple ways to invest in gold. I will cover in brief each one of them:
1. Physical Gold:
No surprises for guessing this. Physical gold is probably the most popular tool people use.
But there are multiple factors to consider here as well. If you are buying raw gold in the form of coins or bars, they will appreciate with the market. However, if you plan to buy jewelry, don’t forget to factor in the making charges which you won’t be able to make a return on while reselling.
ETFs are exchange traded funds. In other words, mutual funds which trade like any other stock in the market but have something else as an underlying asset. For gold ETFs, underlying asset would be.. Duh! Gold.
ETFs are extremely liquid as they can be traded straight away on the stock market.
There are many players offering these ETFs. HDFC, UTI, SBI, BIRLA to name a few. Please conduct your due diligence before choosing one.
- Sovereign Gold Bonds or SGBs are government bonds issued by RBI periodically as an alternative to physical gold.
- People pay in cash to buy these bonds and get cash during the redemption on maturity.
- Minimum amount is equivalent to the rate of 1g gold at that time and maximum is capped at 4kgs per individual.
- Since RBI is involved in this transaction it is the safest way to hold gold. Also, logistics, storage are not your problem any more.
- You also get an interest of 2.5% returns annually (credited semi annually) on your principal amount.
- On maturity you will simply get your cash along with the gains from the appreciation of gold.
- The bond tenor is 8 years.
- These bonds can also be used as a collateral for a bank loan.
- These bonds are available offline with your banks (as and when government announces them) and online with your demat account holders and on RBI site.
4. Digital Gold:
- Digital gold is an equivalent of physical gold stored in a digital vault specific to you.
- You can purchase gold in grams OR Rupees on the platforms offering this functionality and there is no minimum amount.
- Some platforms I am aware of include PayTM, PhonePe, Google Pay. There might be some others as well.
- The biggest benefit I see here is that I can buy gold in small tranches every month and keep on storing it in my vault. It is like an SIP for me but in Gold. For eg. it is not viable to buy 0.5g of physical gold from a jeweler every month and then store it. Hence, the digital mode of gold storage.
Now that you know why, when and how of investing in gold, I think you are better geared up for taking a smart decision. Let me know your thoughts on the same in the comments section below.
Until Next Time..