Diwali 2020 Special: Is gold jewellery a good investment?

November 14, 2020 9:37 AM

Traditionally, Indians have been buying gold on festivities in the form of jewellery or gold coins for its ornamental value. However, does gold jewellery double up as a viable investment option too?

This Diwali 2020, consider exploring online buying options to invest in gold purely from an investment point of view.

Gold as a precious metal has always been held in high regard in our country. In fact our country is one of the largest consumers of gold in the world. And while gold is popular throughout the year, it takes centre stage around Diwali, when gold purchase is considered auspicious. Traditionally, Indians have been buying gold on festivities in the form of jewellery or gold coins for its ornamental value.

However, does gold jewellery double up as a viable investment option too? Let’s find out!

Is gold investment in the form of jewellery a good idea?

Adding some amount of gold to your portfolio can act as a hedge against market volatility and help you reduce your losses. So, while the place of gold in your portfolio cannot be discounted, buying physical gold in the form of jewellery and rationalising your purchase as an ‘investment’ might not offer you the best return on investment. This is because buying gold jewellery involves making and wastage charges that are not considered at the time of resale, thereby diminishing your returns. With about 15% additional cost for “making” of gold jewellery, the intrinsic cost of the same rises significantly if you are looking at gold from the investment perspective.

Also, there is a cost involved in selling gold jewellery, even if you wish to take cash for the same, as old gold, especially if it has been bought before the hallmark or the purity certificate days, is valued at a lesser price. Moreover, safety and liquidity of physical gold, especially in the form of jewellery, become a concern for most. Also, if you wish to liquidate a “part” of your gold investment, it is difficult to sell only a part of the jewellery

So what are the alternatives? There are better ways in which you can purchase gold this festive season, especially if the purpose is purely for investments. Here are a few options:

Other options for gold investment

Digital Gold is one of the most lucrative as well as cost-effective ways for online gold investment. This is the easiest way to buy small portions or fragments of gold with as less as Rs 10 only. Digital gold is usually accompanied with a 24-carat gold certificate which is linked to the real-time price of gold. It can be sold at any point of time with no limitations or restrictions. The amount redeemed/sold would be credited in the investor’s account in as less as 2 days. Some platforms also give you the option to convert digital gold to physical gold on demand.

Gold ETFs

Gold ETFs is one of the smartest ways to purchase gold, as it aims to track the price movement of physical gold with investing in 99.5% purity gold bullion.

Although the Gold ETF is stored in Demat account, and thus have no security concerns, each gold ETF is backed by 1 gm of physical gold. ETFs can be bought and sold at any point of time without any liquidity issues.

Gold Mutual Funds

In Gold Mutual Funds, the fund managers manage the gold investment portfolio, which invests in companies involved directly or indirectly with the mining and gold production. You can invest systematically in Gold MF through the SIP route as well. Also, with attractive taxation options since gold mutual funds offer long term capital gain tax benefit of 20% with indexation, it makes this regulated investment option quite popular.

Sovereign Gold Bonds

If you are a conservative investor, SGB or sovereign bonds are a great idea. It is one of the safest ways of gold investing since the RBI issues them on behalf of the Government of India.

SGBs Series VIII issue is available at Rs 5127 if purchased online with a 2.5% rate of coupon payable half-yearly. There is no TDS on the interest amount. It is an attractive investment option for 8 years with an exit option available only after 5 years.

So, this Diwali 2020 since social distancing is one of the most important factors to consider, consider exploring online buying options to invest in gold purely from an investment point of view.

(By Harsh Jain, Co-founder and COO, Groww)

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