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Gold is known to be one of the most solid types of investment by both experts and lay people. In India, it is by far the favourite avenue as far as investments are concerned. Gold is the right commodity to allow your investments to beat inflation and stay ahead. Though there are phases when markets witness a fall in gold prices, experts believe that it is only temporary and will be offset in the long run.

  1. Why Should You Invest in Gold
  2. How to Invest in Gold
  3. What are Gold Funds
  4. Gold Investment vs Mutual Funds
  5. Conclusion

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:

  1. 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.
  2. 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

 

SIP available
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

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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

5. Conclusion

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.

If you had invested Rs 10,000
every month for last 25 years
in equity funds, you could make

₹ 3.3 Crores
at 15%* annual returns

Invested
Rs 30 Lakhs

Received
Rs 3.3 Crores

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