Gold offers unmatched security. The value of gold has risen over the decades, and the yellow metal has proved itself to be timeless and ageless.
Investment in gold is not only a favourite of individuals. The apex bank of the country, the Reserve Bank of India has major gold investments.
6.22% of India’s forex reserves are in the form of gold. It amounted to $39.405 billion worth of gold reserves.
While the primary benefit of investing in gold is taking advantage of its increasing prices, there are other benefits of investing in gold too.
3 Benefits of Investing in Gold
Helps diversify the investment portfolio
Gold moves in the opposite direction from stocks. When other financial instruments like stocks and mutual funds are not doing well, gold prices increase. A sensible investment is one where the investor has invested in a variety of financial instruments. People invest in gold to add diversification to their investment portfolio. If the stock market crashes or other investments are not doing great, gold safeguards the investor.
Acts as a hedge against inflation
Gold also acts as a hedge against inflation because the price of gold increases with an increase in the cost of living. The prices of various commodities increase with an increase in inflation. At such times, the stock prices fall and there is a decline in the value of the currency too. The value of the currency has depreciated against gold over the years, giving people another strong reason to invest in this precious metal.
Acts as a hedge against geopolitical risks
The value of most asset classes falls during a geopolitical crisis. However, the price of gold increases during such turbulent times. When people feel insecure about the stock market or the currency, the purchase of gold increases. People also buy more gold when they do not trust their government anymore. During such uncertain times, people find security in gold investment since it is a safe investment option.
How to Invest in Gold in India
There are various ways through which a person can invest in gold in India. These are:
- Physical gold: The most traditional and preferred option of investing in gold is by buying it in its physical form. You can buy gold as jewellery, coins, bars, biscuits, and other items in the physical form. Physical gold is highly liquid, and one can quickly sell it or pledge it to get gold finance in times of need.
- Digital gold: People also buy digital gold from the exchanges. Digital gold or e-gold is not in a physical form and the investor gets it in a dematerialised form in his Demat account.
- Gold Exchange Traded Funds: Investors can also buy and sell gold on the stock exchange like other commodities. Investors can buy and sell gold on the stock exchange in the form of gold ETFs. Gold Exchange Traded Funds are mutual funds that invest in physical gold. Thus it is an indirect investment in physical gold. A unit of gold ETF costs the same as a gram of gold. The investor needs a Demat account to invest in gold ETFs, and he has to pay brokerage charges and taxes on them.
- Gold Mutual Funds: A person can also invest in gold mutual funds. These are open-ended funds, and the underlying asset is gold ETFs. Investors do not need a Demat account to invest in gold mutual funds.
How to arrange Gold Finance
The primary reason why people invest in gold is to use it during times of financial need. While an investor can sell digital gold, gold ETFs, and Gold Mutual Funds to arrange finance, the physical gold can be used in two ways.
You can sell off your physical gold when you need urgent cash, but this will deprive you permanently of your asset and you will not get any benefit from the further increase in gold rates.
A much sought-after way of using physical gold to generate surplus funds is by taking gold finance against it as a gold loan. Lenders like Muthoot FinCorp offer gold finance at interest rates, starting as low as 11.99% per annum on easy repayment terms. By taking a loan against gold, you will not have to permanently part with your priceless gold possessions and can get it back easily when you pay back the loan.
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