Add the glitter to your portfolio: Diversifying Portfolios with Traditional and Modern Gold Investments in India
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Jayant Kamra
Why invest in gold?
As Indians, we love owning gold jewelry. Whether it is for religious, cultural, or financial reasons, gold jewelry has always found a place in most households in our country. The primary rationale for gold investments is portfolio diversification, and in that context, gold is viewed as the ideal hedge against inflation and the potential volatility of equity investments. In addition, over the past 20 years, gold has returned an average of 11.2%. This indicates that 20 years later, INR 100 invested in gold would be worth INR 222. However, being a valuable metal, the safety of the jewelry is of high concern to investors
Ways to invest in gold.
There are some conventional and modern types of gold investments preferred by people. In conventional forms, it was just buying physical gold in the forms of jewelry, coins, billions, or artifacts. Today's investors have more options than ever before, including gold funds, sovereign gold bonds (SGBs), and gold exchange-traded funds (ETFs).
Gold ETFs is a type of investment fund that holds gold assets, such as bullion or futures contracts, and is traded on a stock exchange. The AMC allots units to the investors that can then be traded on the exchanges. The price of the ETF correlates with the underlying physical gold, adding the flexibility of equity investment to the age-old simple gold investment. This means that investors do not own physical gold, but instead own a share of the ETF that represents a certain amount of gold.
Sovereign Gold Bonds, which are issued by the Reserve Bank of India on behalf of the Indian government come with a 2.50% annual guaranteed interest rate. The bonds have a fundamental unit of 1 gram and are valued in grams of gold. However, there is no underlying gold in the case of sovereign gold bonds. It’s a bond pegged to gold prices and has a sovereign guarantee. So, at maturity, the redemption happens as per the prevailing gold prices
Here is the illustration of investing in 10 grams of gold across various gold alternatives.
With a variety of investment options available, exploring your options and understanding your risk tolerance is crucial. Regardless of your choice, remember that gold can be a valuable addition to your portfolio, adding a touch of stability and diversification. Happy investing!
