In India, gold has been a traditional form of investment for generations, and often holds sentimental value. Whether purchased on auspicious occasions in the physical form of coins, bars or jewellery; or as digital gold, gold exchange-traded funds (ETFs), sovereign gold bonds (SGBs), and gold mutual funds, investing in gold has been endorsed resolutely through the ages. Gold preserves its value over a long period of time, as opposed to more volatile investments that cannot withstand financial crises. Besides, investing in gold is an easy way to diversify your portfolio — which is part of why it continues to be leveraged as an asset class, even among investors who otherwise embrace risk.
The most significant advantage of investing in gold in any form is that it helps to protect your finances in the long run. Since fluctuation in the price of gold is relatively less, compared to that of stocks or bonds, the returns on investment are sure and consistent. For instance, if an individual invests ₹10,000 in SGBs today and expects to harvest returns once the investment matures after 8 years, they would be eligible to earn returns based on the market value of gold at the time of maturity. This also allows them to put aside a portion of their finances in a way that minimises the risk of their overall financial portfolio, by allocating a part of it to a durable investment avenue.
Moreover, due to its highly liquid nature, physical gold is easy to encash in the event of an emergency. It is low maintenance, unlike other traditional investments such as real estate. Gold investments through SGBs, which are regulated by the Reserve Bank of India, are a tax-free investment option if redeemed at maturity. For other options — including physical or digital gold and gold ETFs — tax is applicable as per income tax slab rates, if the investment is sold before three years. Gold jewellery, of course, comes with a Goods and Service Tax. The value of gold also remains steady during inflation. That said, investing in gold also has some disadvantages. Physical gold is risky to store safely, and stands the risk of impurity. Also, gold investments don’t offer passive income to an investor. Global events can also make it challenging to regulate demand and supply of gold, which does affect prices.
In order to benefit from gold, investors ought to have a clear vision of their long- and short-term financial goals and know how long they can wait to see returns. For long-term investments, digital forms of investing in gold are a better option as they offer more scope for liquidity. For short-term investments that may include life events like marriage, physical gold is generally preferred. Part of the appeal of investing in gold is its versatility. For a curious investor who is open to exploring alternate investment options, gold can help balance the riskier elements of their portfolio. Investors who prefer steady returns over high and quick returns, and tend to be patient, would be satisfied with their investments in gold.
Gold investments promise safety and consistency, which is why they continue to stay relevant. While they are an ideal way to diversify your investments in terms of risk and time horizon, the returns depend completely on the percentage of your wealth that you allocate to it. In comparison to other forms of investment like equity or mutual funds, these investments may not yield very high returns, but they are reliable, and with the variety of options now available, gold can justly claim a place in any well-balanced portfolio.