By Siddharth Srivastava
With the wedding season coming up, Gold jewellery will be on the shopping list of many families in India. Gold is considered to be an auspicious metal in Indian culture. There is a tradition of buying Gold on auspicious occasions like Akshay Tritiya, Dhanteras and Deepawali. We also gift Gold to our loved ones on occasions like weddings, Annaprashana etc. Apart from its cultural importance, Gold is an important asset class from an investment standpoint. The two most common ways of Gold investments in India are buying gold jewellery and buying gold bars/coins. However, Gold ETF is a much safer and cost-efficient way of investing in Gold. In this article, we will discuss about investing in Gold ETF or Gold exchange-traded funds.
Importance of Gold as an asset class
- Gold is seen as a store of economic value over the long term. Over a longer period, Gold is supposed to maintain its purchasing power, and is, therefore, considered a safe asset in our country.
- Gold and Silver are also seen as a store of economic value over the long-term horizon. Over a long period, these two commodities are supposed to retain their purchasing power and are, therefore, seen as a hedge against inflation.
- Gold plays an important role in asset allocation. Risk diversification is an essential aspect of asset allocation. Historical data shows that Gold is counter-cyclical to equities. Adding Gold to your investment portfolio will bring more stability to your portfolio across different market cycles.
Why Gold jewellery is not an ideal investment for your child?
Many Indian households start buying Gold, which they can gift to their children at the time of their wedding. While buying Gold jewellery is the traditional form of Gold purchase, it involves making charges and risk of impurities. Many families start buying Gold jewellery for their children’s weddings from a young age. However, by the time the child will reach marriageable age, fashion trends are likely to change and the parents may have to remake the jewellery for the wedding. When you remake a piece of jewellery, the jeweller will not give any value for the making charges of the original set; only the weight of the Gold will be valued.
Further, the jeweller will deduct the impurities from the value of the Gold. Gold jewellery will invariably contain impurities. For the new jewellery, the jeweller will charge you the cost of making the jewellery and the cost of Gold; they will adjust the value of the old gold minus impurities from the price. So, if you remake Gold jewellery, you have to pay to make charges twice and also lose the value of impurities, even though you have paid for Gold by its weight. Gold in the form of bars and coins is more suitable for investment purposes because they do not contain impurities and do not involve making charges. However, buying Gold in physical form (whether in the form of jewellery or bars /coins) involves the cost of storage and/or the risk of theft.
To avoid the risk of theft, many families prefer to keep their physical Gold in bank lockers, for which they have to pay locker charges to the bank. It is also important to note that like all asset classes, Gold prices are also affected by several factors and tend to have a period of outperformance and underperformance and periods of higher volatility. You need to have Demat and trading accounts to invest in exchange-traded funds.
(Siddharth Srivastava is Head – ETF Product, Mirae Asset Mutual Fund. The views expressed in the article are of the author and do not reflect the official position or policy of FinancialExpress.com.)