Gold is considered to provide the best investment return. But, like always people are afraid to invest their money without having a deep investigation. Main reason why everyone should invest in Gold is that it is the safest way to protect one’s wealth, without any risk of loss, which is very much possible if you invest your money in share market. Investment in Gold is mainly used by wealthy people, who have enough knowledge about associated profits of Gold investment. But, as this is the safest way to protect your money, people should know that their money will never decline if they invest in gold. Though the return rate may seem low than any other investment, but risk of losing your hard earned money is also low. Here are some of important points to note about investing in gold –
- Diversification Benefit: One of the best reasons to invest your money in gold is that it provides a hedge against inflation, and also it is not related to stock market. Instead of buying all the stocks, buyers must hold several types of investments. One should buy investments in such a way that they don’t lose their money in case the market crashes. The value of gold decreases when market is rising, but when market is crashing, gold value usually increases. The best time to use gold investment is when market is falling and inflation is high. Adding different assets to your portfolio, which are not correlated to stock market, has a stabilizing influence when the market goes south. At least 5 percent of overall investment portfolio can be considered good for gold investment.
- Forms of Buying Gold: There are a number of ways to buy gold. Buying jewellery is the most traditional and dominant form in India, which is, by the way, is not an investment idea. Why? Because there are heavy charges (losses) in form of wastage and making charges. Another non-investment idea and a way of buying gold are gold coins. This also cannot be considered as an investment idea because the premium charged by banks for their coins is about 10 to 15 percent, and also, the banks do not ever accept these coins back, so bank coins have lesser liquidity. Bullion bars are a good form of buying gold, but the minimum investment here is very high and a common investor doesn’t like to invest that amount of money. The best option to invest in gold is Gold Exchange Traded Funds (ETFs). These are very similar to mutual funds which invest in gold only. It is very easy and safest form of gold investment. There are very low charges and you can even access the gold electronically.
- Risk: Gold market in India does not carry much risk, as we have hardly seen any deflation in this market. Last year, the official figures showed negative inflation, but actual prices of food were increasing, and this reflected in gold prices as well. There is literally no risk in gold investment.
- Liquidity: In comparison to all other investments, gold holds the highest in terms of liquidity. At any hour, your gold can be converted into cash without much hassle. You can buy jewellery loan as many banks are providing this service. Although several banks don’t allow loans on gold coins, even if the gold coins were brought from that same bank. But, the gold can be turned into cash from your nearest pawn shop as well. Even gold jewellers can exchange your gold for cash or with other gold jewels. But the problem here is that making and wastage charges which will be involved again. This way we lose the value of gold jewels by 10 to 35 percent.
- Tax Treatment: Gold is known to suffer capital gains as per the IT act. This makes it very important to always ask for the bill when buying gold or gold jewels. Around 90 % of gold jewellery which traded in India is done without any bill. And this is one of the serious problems for people who look at gold as a way of investment. You will get the bill only at branded jewellery shops, while at other places; you might have to ask for one. The indexation benefits can be used while calculation of capital gains on gold making tax payable pretty less.
- Convenience: With per gram price rising, even the tiniest single investment becomes higher. As the EFTs has emerged, convenience of holding gold for short term has boomed at a very fast rate. You can invest in gold EFTs for a short term, instead of holding cash.