In India, gold has been a traditional form of investment for generations and holds sentimental value. Investing in gold, be it coins, bars or jewelry or digital gold, gold exchange-traded funds (ETFs), sovereign gold bonds (SGBs) and gold mutual funds, has been accepted for ages. Unlike more volatile investments that cannot weather financial crises, gold holds its value over the long term. Also, investing in gold is an easy way to diversify your portfolio.
The most important benefit of investing in gold in any form is that it helps protect your finances in the long run. As the price of gold fluctuates relatively less compared to stocks or bonds, the return on investment is assured and constant. For example, if a person invests Rs 10,000 in SGBs today and expects returns on maturity after 8 years, they can earn returns based on the market value of gold at maturity. This allows them to set aside a portion of their finances and allocate a portion of it to long-term investment avenues, reducing the risk of their overall financial portfolio.
Moreover, due to its liquid nature, gold is easy to cash in emergencies. Unlike other traditional investments like real estate, it requires low maintenance. Gold deposits through SGBs managed by the Reserve Bank of India are a tax-free investment option if redeemed on maturity. Other options — including physical or digital gold and gold ETFs — are taxable at income tax slab rates if the investment is sold before three years. Gold jewelery is definitely subject to GST. The value of gold remains stable even during inflation. That said, investing in gold also has some disadvantages. Safely storing gold is dangerous, and the risk of purita remains. Also, gold investment does not provide passive income to an investor. Global developments can make it challenging to manage the demand and supply of gold, which affects prices.
To benefit from gold, investors must have a clear vision of their long-term and short-term financial goals and know how long they can wait to see returns. For long-term investments, digital forms of investing in gold are a better option as they offer more potential for liquidity. For short-term investments involving life events such as marriage, physical gold is generally preferred. Part of the appeal of investing in gold is its versatility. For an investor interested in exploring alternative investment options, gold can balance the risk factors in their portfolio. Investors who prefer steady returns over high and fast returns, and those who wait patiently, will be satisfied with an investment in gold.
Gold investments offer safety and stability, which is why they remain relevant. Although it is a great way to diversify your investments in terms of risk and timing, the returns depend on the percentage of your wealth you allocate to it. Compared to other forms of investment like equity or mutual funds, these investments may not yield very high returns, but they are reliable and with the variety of options available now, gold can find a place in any portfolio.
