While buying gold and gold jewellery is considered auspicious during any festive season, does it make sense as an investment?
It is festive time again and also time to celebrate and buy gold. The festive season has started with Onam and Bakrid and till Dhanteras and Diwali people will remain in a high festive mood. During this time people not only buy expensive gifts for their near and dear ones, but also gold, particularly gold jewellery.
For instance, Onam – which is the biggest and the most important festival of Kerala – is considered an auspicious day for buying and wearing gold. “Traditionally, Onam is also a time for spending on one’s family and home. So, there are a slew of offers provided by retailers to boost sales on everything from food to clothes, to consumer durables and even gold. With the wedding season and the shopping season coinciding around Onam, there is a tremendous spike in gold purchases around this time,” says Ajit Narasimhan, category head – savings & investments, BankBazaar.com.
Similar is the case with Diwali when gold jewellery worth crores of rupees is bought by people. However, while buying gold and gold jewellery is considered auspicious, it makes little sense as an investment.
“Purchasing gold jewellery as in investment is not a smart idea. People usually think of gold as an easily bought and easily liquefiable asset that can be relied upon to appreciate well. However, gold jewellery comes with its own associated costs. These include making charges, wastage, etc., and add up to the cost. Moreover, while liquidating the jewellery, these costs are not recoverable. Also, it may not be very easy to sell jewellery for cash,” says Narasimhan.
In addition, gold itself is an unproductive asset. A lump of gold will as a lump of gold and will never produce anything. Its value increases entirely on the belief that someone else will pay more for it eventually. On the other hand, if an equivalent amount of money is deployed in a business or any other productive economic activity, it will generate actual wealth and grow larger in a very fundamental way.
If you are looking to invest in gold, there are other ways than buying jewellery. For example, you can buy gold exchange traded funds (ETFs), whereby your gold is stored digitally in your demat account, with no risk of theft or purity, or charges on making. These do not carry entry and exit loads, and investment returns are linked to gold prices. Many mutual fund houses closely track the value of gold and have gold-backed mutual funds. Several mutual fund companies have schemes that invest in gold ETFs. You can avail these schemes with amounts starting from Rs 500 per month. Gold funds are treated at par with debt mutual funds in terms of taxation of capital gains.
“The Government of India’s gold bonds are also a good option if you are looking to stay invested for 8 years or more. These bonds are issued periodically, and their value increases exactly with gold. They also provide an extra interest of 2.5% per annum. Unlike gold mutual funds, gains from the gold bonds are tax-free. This makes it very similar to holding physical gold with a 2.5% a year bonus,” says Narasimhan.