How much percentage in your portfolio should be allocated to gold?
It is subjective and depends on various factors such as one’s risk-return characteristics and expectations, degree of risk aversion, age, liquidity needs, investment horizon, income, and stability of income.
A risk-averse person will keep his portfolio more diversified by selecting investment avenues that have a negative correlation to equity markets and hence will allocate more to gold (15%-30%). On the other hand, an investor with a high-risk-taking capacity might not allocate a high percentage of their portfolio to gold (0%-10%).
Why Should You Consider Gold Funds As An Investment?
Gold has retained its value for thousands of years. During economic turmoil, when company stocks take a nose dive, and the currency loses its value, gold retains its value and sometimes appreciates. Swyom Capital lets you leverage revenue-generating, fully liquid digital gold investments without hassles.
Both physical gold and digital gold mutual funds/ bonds are known to be exceptional inflation hedges. The market price of the yellow metal “Gold”, often rallies during times of high inflation and economic uncertainty. Looking at a broader picture, inflation could rise in the coming 2-3 years and gold might provide a good hedge. According to various economists and experts, upcoming worldwide inflation is imminent.
Gold vs Mutual Funds
Equity, Debt, and Hybrid
Physical and Digital Gold
You can invest lump sum or opt for SIP and invest small amounts regularly. You can invest in a mutual fund starting at just Rs 100.
A gram of physical gold costs thousands. But you can start investing in a digital gold with an SIP too.
Mutual funds generate returns of around 12%-15% in a year.
Gold can give returns of around 8% in the long run and acts as a hedge against the Equity portfolio.
You can sell mutual funds easily on stock exchange.
Gold is always in demand and you can resell it with ease.
Being market-linked investments, mutual funds are riskier than gold.
Gold is a very low risk-bearing investment.
Tax benefits are only available Equity Linked Savings Schemes.
Sovereign gold bonds and gold monetization schemes offer tax benefits.
You can maximize returns from compounding by investing in growth mutual funds.
Gold does not earn interest or dividends so there is nothing to reinvest.
Performance During Poor Market Conditions
When stock market hits low, value of mutual funds decreases. But, as soon as market recovers, mutual funds do too.
When market crumbles, investors look for other safe alternates. They turn to gold strengthening its value.
There are various ways to invest in gold:
Jewellery should never be an investment option. As jewellery attracts a significant amount in making charges and GST on making charges as well which can reach as high as 25 percent of the gold cost. It is highly illiquid and attracts the risk of theft.
The general idea behind gold investment options is to diversify portfolio risk and achieve portfolio appreciation during economic turmoil. Investors invest in digital gold to beat inflation in the long term. It is considered to be secure when compared to other investment instruments, as it provides security against market volatility. The factors that directly impact gold mutual funds and gold bonds in India prices include inflation, the state of the jewellery market, government gold reserves, interest rates, the international market, and global gold price movements.
There is a plethora of gold investment options available in the Indian market; for instance, the investor can opt for physical gold bars, gold biscuits, gold coins, sovereign gold bonds, gold equity funds, gold ETFs, gold FOFs or gold mining shares. All the instruments mentioned above are the best gold investment options because they provide similar facilities as physical gold, and you can be assured that your invested fund is safe. To invest in gold in India, the investors are mandatorily required to have DEMAT (dematerialized) account.
Liquidity is the prime reason investors opt for gold investments in India. Gold mutual funds and sovereign gold bond investments allow investors to exit anytime, enabling them to withdraw cash in return. On the other hand, liquidating physical gold can be difficult – as investors need to trade assets with a jeweller store. Liquidating digital gold mutual fund, ETF, and gold bond investments are similar to selling your other investment on exchanges. Alternatively, liquidating physical gold, such as bars, coins, and biscuits, is often considered a loss.
India sovereign gold bond offers a superior investment alternative to holding gold in physical format. With SGB, the total quantity of gold for which the retail and institutional investor pays is entirely protected by the government authorities. Additionally, investors invest in sovereign gold bonds because SGB provides an ongoing market price at the time of redemption. SGB is the best gold investment option because there are no liquidity issues, and bonds are held in the books of the RBI plus, investors incur no risks and costs of storing physical gold with top-notch security. Opting for Gold investment services allow investors to manage their funds and assets better.
When compared as an investment, gold funds and gold bond investments are better investment options than physical gold. When investors opt for direct gold, they usually have to pay a sum amount to the respective jeweller in order to acquire the ornament. In direct gold purchases, the investor also incurs a wide range of costs such as ornament-making charges, GST, and additional service charges. Purchasing indirect gold such as gold ETFs, gold funds, and bond allow investors to bypass most problems and costs. However, with indirect gold investments, the investor can become the owner of the equivalent value and amount of gold at a small fee.