Investment returns hit by inflation? You may include gold in your portfolio | The Financial Express

Investment returns hit by inflation? You may include gold in your portfolio

When assessed in relation to the fluctuating inflation rates, gold has performed traditionally well over decades, which adds to its reputation of being an excellent hedge against inflation.

Investment returns hit by inflation? You may include gold in your portfolio
Over the last 30 years, in rupee terms, gold has generated an annualised return of 10 per cent.

Traditionally, gold is treated as a prime investment product in India. People try to buy gold every year on the occasions – like Akshaya Tritiya, Dhanteras, Diwali etc – and use gold jewellery in almost every family gathering, wedding ceremonies etc. Not only people here love to use gold jewellery, but also pass the gold from one generation to the next generation.

With the introduction of more investment options – like digital gold, gold funds, gold ETF, Sovereign Gold Bond (SGB) etc – there is a gradual shift from physical gold to paper gold for pure investment purposes.

Rajesh Shet, Co-Founder and CEO, SahiBandhu explains how gold would act as a hedge against inflation:

Higher Return

Gold is a time-tested investment that continues to hold merit over several other options available today. When assessed in relation to the fluctuating inflation rates, gold has performed traditionally well over decades, which adds to its reputation of being an excellent hedge against inflation. Over the last 30 years, in rupee terms, gold has generated an annualised return of 10 per cent. Over the last decade, the annualised return from gold has been 11 per cent. During the same period, the CPI index has compounded at 6.3 per cent. This makes it quite clear why gold is an inflation-proof investment over longer periods of time.

Safe Haven Investment

That being said, inflation or not, gold should be a part of an investor’s portfolio. There are several other factors and peculiar risks besides inflation that can adversely impact investments in stocks. These include geopolitical tensions like we have recently seen amidst Ukraine and Russia, or any other catastrophe like the Covid-19 pandemic. During such circumstances, gold is a tried and tested safe haven for investors. Therefore, it is advised that investors allocate an equivalent of 10-20 per cent of their portfolio to gold.

A Reliable Collateral

In addition to being a good investment option, gold has multiple other uses. While jewellery is the first thing that pops up in mind while talking about gold, the precious metal can also be used to procure loans in times of need. Gold loans are typically low interest loans, which a borrower can get disbursed without much hassle. And unlike other loan options available, the interest rates for gold loans seldom undergo fluctuations during the loan period, thus protecting the financial interests of the borrowers. Investing in gold, therefore, comes bearing many gifts, due to its high liquidity, calamity-proof nature which also makes it a reliable collateral for taking loans.

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First published on: 06-12-2022 at 08:57:03 pm
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