This year Akshaya Trithya is falling on April 24th. As usual roads leading to the jewellery shops will be jammed with traffic and the only word you hear everywhere will be GOLD!
Whether you believe in this opportune day or not, the idea of investing in gold systematically is a good one. Gold is a good hedge against every phenomenon you can think of – inflation; political uncertainty; company, industry, sector or economy going through turmoil; global crisis – you name it. It is an excellent way to diversify your portfolio and you should ideally have an exposure in the range of 7% to 10% of your portfolio.
As Indians, culturally we have a deep relationship with gold. Gold is a very significant part of the marriage expenses of daughters in particular. Therefore we all have some gold in ornamental form atleast. Having said that, one doesn’t feel comfortable taking gold in such form and selling it back to the jeweller. Even though you are doing that from an investment point of view, it feels desperate.
Therefore investing in gold either in physical form or through the paper route of gold ETFs is a good option.
In ‘physical’ form, you can buy and hold gold in bars or coins. These can be bought in various weights from as little as 4 to 50 grams at prices based on international bullion market. There are no added costs like design and making charges and the value cost moves in sync with the benchmark price of the base metal.
The only issues to investing in this way are that you have to store this gold somewhere safe usually in your locker, you cannot sell it back to the bank from which you bought this gold but only to a jeweller who may or may not give you full price for it and banks charge a premium of 10% to 20% on the base price. If you buy this gold from a jeweller than the purity of the gold is always suspect and not a concern only if you are selling it back to the same jeweller.
Gold ETFs or exchange traded funds are equivalent to mutual fund units with each unit equivalent to a gram of gold in most schemes (some schemes offer units that equal to half a gram). These ETFs can be bought and sold using a regular dematand trading account and the gold behind each unit has a quality of 99.9%.
There are some advantages to buying gold this way as you can buy gold in smaller units that fit your budget; advantage of long term capital gains is available from one year itself as opposed to 3 years in case of physical gold and lastly, wealth tax is not levied on ETFs.
An efficient way of growing your gold portfolio would be to invest in ETFs in a systematic and disciplined manner similar to a SIP. Earmark a particular date, say the 10th of every month or a quarter and buy units with a set amount (minimum amount of gold that you have to buy is 1 gram). This would be a great way for putting aside money for your daughter’s wedding still some years away.
AUM in gold ETFs was Rs.9,516 core at the end of March this year, which is an increase of 153% in one year, as per NSE data.
Wishing you an auspicious AkshayaTrithya
[Article contribution by International Money Matters]