In current times, there is global economic uncertainty because of the coronavirus pandemic and political tensions in different regions. Markets are volatile. Interest rates are on a downward trend. The price of crude oil has been on a downward trend due to lack of demand from transport and industrial activity. In this scenario, institutional investors will reduce weightage of equities and increase weightage of gold. Bond investors might shift to gold as prices of bonds are rising due to falling interest rates.
In such a scenario, retail investors seek an asset with low volatility. Gold as an asset class can be considered here. It has always been a valuable commodity across the globe. In India, gold is important from both investment and consumption perspectives.
There are many reasons for investing in gold –
1) The rupee has depreciated against the dollar in the last two years and that is good for gold prices.
3) Moreover, when the equity market is on a downtrend, gold prices tend to go on an uptrend. Investing in gold is a good hedge for your investment portfolio.
4) In a period of deflation, gold usually does well and so balances the risk in the portfolio.
5) In the past, gold had performed well in 2000 during the dotcom bubble, and in 2008 during the global financial crisis.
6) Returns of gold funds have been in-line or beating inflation and that makes it a good investment. Here is a comparison of the returns of a few funds –
Fund Name
|
1 – Year Return
|
3- Year Return
|
5- Year Return
|
HDFC Gold Fund
|
48.05%
|
21.23%
|
14.26%
|
Kotak Gold Fund
|
50.07%
|
21.81%
|
14.62%
|
ICICI Gold ETF
|
44.83%
|
20.84%
|
14.68%
|
Gold is a useful hedge when there are adverse economic conditions. Moreover, it provides good returns over the long-term. Most experts suggest that gold should be around 10% of one’s investment portfolio. This is apart from the jewellery one owns. The best way to invest is in the form of SIPs or buying small amounts at regular intervals.
What are the different ways of investing in gold?
You can buy gold in three forms for investment purposes –
Gold coins, bars and jewellery – You can invest without a demat account but there are additional costs related to storage and risk of theft. Impurity deductions, making charges (jewellery) and taxes are applicable. When you sell, capital gains tax is applicable. It is not the most efficient way to invest in gold.
Gold ETFs and Gold funds – You buy a paper based asset equivalent to the value of gold. You can invest in Gold ETFs via a demat account. Gold funds can be bought directly from mutual funds or via demat accounts. There will be some management charges but there won’t be taxes such as VAT. There will be no risk of theft. SIP option is available. Capital gains on Gold ETFs are taxed at 20% after indexation if held for over three years. Gold ETFs require a minimum investment equivalent to 1 gram of gold and gold funds usually require a minimum investment of ₹ 500.
Sovereign Gold Bonds (SGBs) – SGBs are government securities denominated in grams of gold. Minimum investment is one gram and the maximum is 4 kg. An interest rate of 2.5% per annum is payable to investors. The tenor of the bond is 8 years though one can sell after 5 years based on certain conditions. You earn interest and get the amount of capital appreciation when you sell the bonds. The interest is taxable as per your income tax slab. Capital gains are exempt from tax.
Gold is a strategic investment option. Allocate some part of your investment to gold instruments based on your requirements and financial planner’s advice.
0 Comments