For centuries, gold has held a special place in the hearts of people in India. It stands as much more than a mere asset for investment planning. It is so deeply intertwined with our culture and traditions, that today India is one of the world’s largest markets for gold. Gold is a part of many festivities and celebrations here. No wedding ever feels complete without it and Diwali is the same. The auspicious days of Diwali demand investment, as it is believed that any investment made during this time is destined to multiply many times over. Traditionally, people buy gold coins, bars, and jewellery, but the times are changing. There’s a modern twist to this age old tradition with the gaining popularity of digital gold. So let’s take a closer look at different ways you can invest in gold, and explore strategies for investing in gold this Diwali.
The Significance of Gold as an Investment
Not only is gold a symbol of wealth, purity, and prosperity but it is also regarded as a wise investment choice. Its various qualities make it a key component in investment planning. It is a powerful shield against inflation, as its value remains relatively stable. It’s also a smart way to diversify your investments because it often moves differently than stocks and bonds, helping to lower your overall risk. Plus, it’s easy to turn your gold into cash when needed, wherever you are in the world.
Different Ways to Invest in Gold
There’s a range of options available to invest in gold these days, to suit different preferences and financial goals. Here are some of the most common methods:
Traditionally, most Indians have preferred investing in physical gold. This can take the form of gold coins, bars, or ornate jewellery. While jewellery has a dual purpose of adornment and investment, coins and bars are usually chosen for their purity and simplicity. They are also commonly used for gifting during the season.
Physical gold does however pose some storage and security concerns. One may be worried about theft. Jewellery also often requires regular quality checks and needs to be maintained.
Gold Exchange-Traded Funds (ETFs)
Gold Exchange-Traded Funds are a form of digital gold. They essentially are mutual fund schemes dedicated to investing solely in gold. They represent ownership in physical gold. Investors hold gold units electronically, with each ETF unit equivalent to one gram of gold. You can start investing in Gold ETFs by purchasing just 1 unit. Just like normal shares, these units are actively traded on the stock exchange, allowing you to buy or sell them very easily. Also, you don’t have to worry about storage or theft.
Sovereign Gold Bonds
Sovereign Gold Bonds are issued by the Indian government through the Reserve Bank of India, encouraging investors to purchase gold bonds rather than physical gold. They are regarded as an attractive investment option due to their consistent returns. Another major advantage is the potential price appreciation. Also, since it is a form of digital gold, there is no risk of theft or loss. If you hold it until maturity, you can even get tax benefits on capital gains.
So the thing to consider with Sovereign Gold Bonds is that there is a lock-in period. They have limited liquidity compared to other options.
A Gold Fund is a mutual fund scheme that operates by investing in gold-related assets, such as stocks of international gold mining companies or other gold-related securities.
What sets gold funds apart is that you aren’t required to hold a demat account, you can make your investments through SIPs. Thus you get all the benefits mutual funds provide like professional management and diversification across different gold-related assets.
It’s worth noting, though, that these funds come with slightly higher expenses to cover the fund’s management, when compared to direct investments in gold ETFs, and are subject to market risk associated with gold-related companies.
Gold Futures Contracts
Gold futures contracts present a more advanced and potentially riskier way to invest in gold.
Here’s how it works. It’s like a promise between an investor and the market. The investor agrees to either buy or sell a certain amount of gold at an agreed-upon price in the future. This commitment is made with the hope of making a profit or accepting a loss.
The contract has an end date, and when that day comes, the investor can decide to either buy or sell the gold or simply wait until the contract finishes. It’s like making a deal and having the flexibility to act when the time is right.
Significant gains can be made through gold futures but they also carry high risk. This is why this option is recommended for more experienced investors.
Strategies for Investing in Gold During Diwali
As Diwali approaches, you might consider various strategies for investing in gold:
- Buying Gold Jewellery vs. Gold Coins/Bars
Let’s take a look at the advantages and disadvantages of each option so it’s easier for you to decide which option to go for.
Jewellery of course offers aesthetic appeal and cultural significance, you can wear it and it will also double as an investment. However, you need to take into account factors like making charges, taxes, and the necessity of regular quality checks. Also, jewellery isn’t pure gold. Usually, its purity lies between 18-22 carats.
On the other hand, gold coins and bars boast purity, simplicity, and easy storage. They are also much easier to sell than jewellery. But of course they can’t be worn.
- Timing Your Gold Investments Around Diwali
Historically speaking, due to the tradition of buying gold around Diwali, gold prices tend to rise as demand goes up. However, it’s important to exercise caution with timing. While historical trends are relevant, it’s equally crucial to consider current market conditions and global factors that affect gold prices. It’s wiser to stick to your long-term investment goals rather than be overly influenced by short-term price changes.
- Identifying Reputable Sources for Gold Purchases
You should ensure that you’re dealing with reputable sources to guarantee the authenticity and quality of your gold purchase. When buying jewellery, make sure the brand is well established and known for its authenticity. Look for hallmark certifications.
You can buy gold coins from banks as well. They issue a certificate of purity for the gold they sell. These coins come in tamper-proof packaging, assuring you of their purity and weight, but they also charge over the market rate.
- Storing and Securing Your Gold Investments
In the case of physical gold, it is extremely important to take steps to ensure your investment stays safe. Knowing that there isn’t a risk of theft or damage will also give you peace of mind. You can consider options such as bank safe deposit boxes for maximum security or secure home safes if you prefer to keep gold at home. On the flip side, if you invest in digital gold, then you won’t have much to worry about as far as safety is concerned. On top of that, you will also save money, as you won’t have to buy a safe or pay for a bank vault.
Seek Professional Investment Advice
Investing in gold can be an important part of your overall investment planning, but the abundance of choices can sometimes feel a bit overwhelming. That’s where an experienced professional comes in. An investment planner can help you assess your financial goals and risk tolerance, and recommend which gold investment options are most suited to you, including the allocation that suits you best. That is why it’s a wise move to consult with an investment planner to customise your investment strategy to your unique circumstances.
Investing in gold during Diwali and Dhanteras is not just a cultural tradition, it’s also a wise financial move. There are plenty of options for you to invest in gold this Diwali. Whether you opt for physical or digital, an investment in gold can help you secure your financial future. By conducting thorough research, and seeking professional guidance you can make the most of this auspicious and timeless tradition.