Investments are a great way to grow financially and also have a contingency fund to fall back on when the need arises. Today, there is a wide-range of investment options to choose from, giving you the opportunity to diversify your portfolio and secure your financial wellbeing.
Among the many investment avenues available, gold is a popular option across India. So much so that investment in gold is now available in different forms, such as a gold deposit scheme or bonds.
With it being a traditional investment option for years, almost every household across the country owns the metal in some form or the other. In fact, the Indian gold reserves reached an all-time high of 780+ tonnes in the last quarter of 2022.
But why is investing in gold a good investment option? Read on to find out.
Proves to be an Excellent Hedge Against Inflation
The fact that gold can help one combat inflation is one of top reasons why many rely on it. How does gold help in inflation? This is mainly due to its inverse relation with the currency. When the currency value starts decreasing, the value of gold increases.
Historically, whenever the value of currencies across the globe depreciated, the value of gold appreciated. The appreciation in value has been so high that gold price reached an all-time-high.
Given this, when your other investments offer returns below the inflation rate, the returns from gold are likely to surpass it. This gives you the financial support needed during inflation.
Diversifies Your Portfolio and Mitigates the Risk
To ensure that you get returns you want in the long run, having a diversified portfolio is a must. A diversified portfolio is when you invest in different asset classes with different risk levels.
Diversifying your investment is necessary because it can help you offset the risk of one avenue with another. This increases your chances of keeping your investment corpus intact and getting the returns you want at the end of your investment.
One of the reasons why gold is a great way to diversify your portfolio is because of the way it works as compared to other investment avenues. Gold tends to have an inverse relation with other investment options.
This means that when your other investment options see a decline in performance, gold will likely give you the opposite result. This negates the loss that you would otherwise bear in an undiversified portfolio.
Offers Funding due to High Liquidity
Gold is one of the few commodities that you can buy and sell whenever you want, making them very liquid in nature. This characteristic can help you get the financial support you may need without any hassles.
Moreover, if you don’t want to sell your gold, you can always get a gold loan. A majority of the financial institutions offer gold loans for up to 90% of the market value of your gold. This means that if you own gold jewellery worth ₹2 Lakhs, you can get up to ₹1.80 Lakhs as loan.
In addition to this high ratio, the gold loan tenure and interest rate can also be favourable if you choose the right lender and have good creditworthiness. This makes the loan affordable while keeping your asset secure.
Keeps Your Investment Secure
If you look at the historical data of gold, you will see that while the prices have risen in the long run, they remained stable in the short/midterm. This stability in price makes them a safe investment option as your investment amount will stay the same if not increase.
In addition to this, gold is one of the few financial commodities that is not a liability for other entities. This means that there is no middleman or broker involved in investing in gold and you have control over it.
As such, the chances of the value of gold touching zero is nearly impossible, which is possible in other forms of investment where multiple entities are involved.
Allows You to Invest in Multiple Forms
Gone are the days when gold was only available in its many physical forms. Today, you can invest in gold through many forms. Here’s a look into the different investment forms of gold
- Gold Deposit Scheme
It works like a fixed deposit but for gold. In a gold deposit scheme, instead of cash, you invest your gold with an institution and it in turn offers interest returns.
- Digital, ETFs, and Mutual Funds
Digital gold, gold ETFs, and mutual fund gold work similar to that of other investment avenues. You will require a Demat account for ETFs and digital gold but not for mutual funds.
- SGB
Short for Sovereign Gold Bonds, these are issued by the government and denominated in grams. These bonds have seen a significant rise in the past years due to its accessibility and it being a safer alternative to physical gold.
Suits the Needs of Even Beginners
Investing in gold is fairly simple and straightforward. It does not require you to monitor the market continuously or have special skills to assess the viability of the investments, unlike other investment options.
To invest in gold, all you need to do is buy the metal in a form most convenient to you and store it accordingly. In the case of physical gold, you can get it tested for authenticity and keep your worries at bay.
Given the way gold adds value to your portfolio, make it a part of your investment strategy. Keep in mind that although the price of gold seems volatile for the short term, it offers adequate returns in the long term.
Gold prices have historically been on the rise and will likely continue to do so in the near future. This makes now a perfect time to capitalise on it and secure your financial well being.
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