1. Why Should You Invest in Gold
Safety, Returns and Liquidity are the three criteria to look for before making any investment. There are many good reasons to invest in gold; here are 2 main reasons why you should invest in gold:
- Gold investment is worthwhile because it is an inflation-beating investment. Over a period of time, the return on gold investment is in line with the rate of inflation.
- Gold has an inverse relationship to equity investments. Example, if the equity markets start performing poorly; gold would have performed well. Considering gold as an investment option in your investment portfolio will be a buffer to the overall volatility of your portfolio.
2. How to Invest in Gold
The “Golden” question now is, how does one invest in gold. Conventionally the tradition was always to buy physical gold, in the form of coins, bullions, artifacts or jewellery. Nowadays, there are more advanced forms of investments in gold such as Gold ETFs (exchange-traded funds) and Gold Funds. Gold ETFs are similar to buying an equivalent sum of physical gold but without the hassles of having to securely store the physical gold.
It is a convenient form of investment as it removes the risk of theft/ burglary associated with possessing physical gold. Gold Funds involve making an investment, not in gold, but in companies engaged in gold mining.
Let’s understand different ways of investing in Gold from the table below:
|Gold||Gold ETFs (Exchange Traded Funds)||Gold Funds|
|Investment in physical gold||Investor buys a proportionate value of gold but not in the physical form||The investment is made in bullion and companies involved in mining gold|
|Demat account is not required to invest in Gold||The investor needs a demat account||No requirement for a demat account to invest|
|Market fluctuations directly affect the prices of Gold||Changes in the price of gold affect the prices of Gold ETFs||Changes in the price of gold does not affect Gold funds directly|
|No additional charges involved other than the physical gold itself||Gold ETFs involve asset management and brokerage charges||There’s a minimum charge involved for the management of the gold funds.|
|The buyer is prone to risks of theft and burglary associated with storing physical gold||Gold ETFs remove the burden of trading gold in the physical form||Eliminates the risk of theft/ burglary and buffers investments to changing market fluctuations|
|No paperwork required for investing||Paperwork required for investing in Gold ETFs||Paperwork is required for investing in Gold funds|
|Systematic Investment Plan (SIP) not available||No SIP option
|Best suited for conventional investors||Best suited for investors who have the required time and skill set to trade||Best suited for investors who expect high returns taking calculated risks|
3. What are Gold Funds
Gold funds or gold mutual funds are investments that are made in the stocks of companies that operate in gold and gold-related activities. Gold funds also include silver, platinum and other metals in their investment basket, in other words, gold funds are not solely gold investments. As compared to gold ETFs, gold funds are professionally managed, utilising fundamental trading analysis to buy and sell stocks to try to maximize returns for the investors. Gold funds are dependent on the market conditions to an extent.
As compared to investments in physical gold, mutual funds eliminate the risks on returns substantially by distributing investments along with a wide range of investment domains. In other words, mutual funds work on the principle of not putting all eggs in one basket. Making an investment in mutual funds as compared to gold investment requires careful planning and thought from an investor.
Let’s understand Gold vs Mutual Fund investment:
4. Gold Investment vs Mutual Funds
|Gold Investment||Mutual Fund|
|Definition||Gold is a precious high-value metal that is liquid in nature||Mutual Fund is investor’s pooling money to be invested in equities, debts and other market instruments to multiply money|
|Management||Investments are made and managed by the investor himself||The investment is professionally managed by experts to create wealth and reduce risks|
|Risk Involved||Physical carrying and storage of gold involves high risks of theft and burglary||Investment in mutual funds can be done with safe and secure methods|
|Returns||Gold does not pay any dividends||Mutual funds yield substantial returns to the investor|
|Investment Cost||Taking an average cost of Rs. 31 thousand per 10 grams, one needs to carefully think before making an initial investment in gold; considering the high cost to begin investing||Mutual fund investment is affordable and flexible. One can begin investments from Rs 1000|
Investments of any kind have their own set of pros and cons. In the case of gold investment; The safety and security of physically protecting the gold is a great hazard. Although investing in gold comes with a bunch of disadvantages, the other viable investment option that one can consider is Mutual Funds.
The sole purpose of investing in Mutual Funds is to generate greater returns than what any other traditional investments offer. Mutual Funds are also more tax-efficient as compared to traditional investments.