Is this the right time to buy gold? What is the best way to invest in gold to get good returns?
Ans: Gold has always been a preferred asset for Indian investors. It serves as a hedge against inflation and economic uncertainty. The decision to invest in gold depends on your financial goals and portfolio requirements. Let’s explore the timing, benefits, and best ways to invest in gold.
Benefits of Gold as an Investment
Hedge Against Inflation
Gold protects purchasing power during inflationary periods.
It retains value even when currency depreciates.
Portfolio Diversification
Gold provides stability in a diversified portfolio.
It has a low correlation with equity markets, reducing overall risk.
Crisis-Resilient Asset
Gold performs well during global economic or geopolitical crises.
It acts as a safe haven during financial instability.
When Is the Right Time to Buy Gold?
Economic Uncertainty
During global or local financial crises, gold prices tend to rise.
Buy gold when markets are volatile and equity markets are uncertain.
Inflationary Environment
Rising inflation reduces the value of money but increases gold prices.
Use gold to protect your wealth against inflation.
As a Long-Term Strategy
Timing the market for gold is difficult and risky.
Accumulate gold gradually over time instead of making a lump sum purchase.
Best Ways to Invest in Gold
Physical Gold
Includes gold coins, bars, and jewellery.
Physical gold has emotional value but comes with storage and safety concerns.
Gold ETFs
Gold Exchange-Traded Funds are convenient and liquid.
They reflect real-time gold prices but lack active management benefits.
Sovereign Gold Bonds (SGBs)
SGBs offer fixed interest along with gold price appreciation.
They are tax-efficient if held until maturity, but liquidity can be a concern.
Digital Gold
Digital platforms allow you to buy gold online in small amounts.
It eliminates storage issues and allows easy transactions.
Actively Managed Funds with Gold Exposure
Mutual funds with a portion allocated to gold provide diversification.
Actively managed funds perform better than pure gold funds in terms of risk-adjusted returns.
How Much Gold Should You Hold?
Optimal Allocation
Limit gold allocation to 5-10% of your total portfolio.
This ensures diversification without overexposure.
Balanced Approach
Avoid over-reliance on gold as it doesn’t generate regular income.
Focus on balancing growth assets like equity and stability assets like debt.
Tax Implications of Gold Investments
Physical Gold
Gains are taxed as per your income slab if sold before 3 years.
After 3 years, LTCG is taxed at 20% with indexation benefits.
Sovereign Gold Bonds
Interest from SGBs is taxable as per your income slab.
No capital gains tax if held until maturity.
Gold ETFs
Taxed similarly to physical gold gains.
Final Insights
Gold is a valuable addition to any portfolio when used wisely. It is not suitable as a primary growth asset but works well as a stabiliser. Consider your financial goals and diversify investments across asset classes for maximum benefit.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment