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INVESTING IN GOLD? THINK AGAIN

The entire world knows that Indians are crazy for gold and especially Indian women. Since ages Indians accumulate gold as an investment for hard times. As you all know India was called Golden Bird before British rule because of treasure India had. In India, Gold has great religious significance, it is considered highly auspicious and as the symbol of the Hindu Goddess Lakshmi. People make sure that they must purchase gold at festivals like Dhanteras and Akshaya Tritiya. This is one of the reasons why the gold rate in India is always more than the rate in the International market.

Women are emotionally attached to gold, you are not satisfied no matter how much gold you possess, and you still want more. You usually start accumulating gold for just born girl child, keep purchasing more and more gold, on every birthday and on every festival for your daughters so you have enough at the time of her marriage. And this habit of purchasing, accumulating, and gifting gold to daughters is never-ending.

In India, gold is considered as a status symbol, it symbolizes wealth, in weddings, the gold wore by the bride shows her family’s status and wealth. More gold women wear more prestige for the family in society. It’s precious and worthy across all cultures and times. It is seen as a gift item, gold jewelry is given as gifts during weddings, festivals and other special occasions. Women are stingy on basic necessity save each penny to purchase gold, just accumulate generation to generation. Even working women purchase gold so that you have enough during marriage and it gives no tax benefit.

Imagine you accumulated enough gold and now it’s time for your daughter’s marriage. Definitely you want to purchase the latest designer jewelry, so you sell the old gold lesser than market price and purchase the new design on market price, pay new taxes again, pay to make charges on a new design. End of the day you spend more than what you actually thought you saved by accumulating gold.

There are many reasons women choose to buy gold and let go of other investments. You keep hearing at your neighborhood and relatives that people purchasing gold for their daughter’s marriage, on any occasion or festival, you get to influence and follow the same without optimum utilization of money you hold.

One of the other reasons is, gold is considered an equivalent for liquid cash and is highly liquid. It can be converted to cash anytime when an emergency arises and is considered a friend in need. But the fact is when you resale the gold ornament you get less than the market value on the jewelry and GST, tax, making charges on the jewelry is nowhere counted. And the big reality is when you are in need of money, you don’t sell gold but you go for a loan with a high rate of interest. If you compare the interest on the loan and the wealth accumulation on gold you hold, you are actually a loss.

One more important discussion these days about the safety of holding gold and gold jewelry. You keep hearing about robbery all around, which states it is not safe to keep gold at home, need to be very alert while wearing gold and moving out of the house. These created new business for banks. Banks came up with a locker system, you can keep your precious metal in a locker, but the locker also charges. So consider it as a maintenance charge of holding gold. No one adds this maintenance cost to the value of the gold you hold. On the other hand, getting a locker is also a big task these days, and again it is not 100% safe, no bank gives guarantee for the material placed in a locker.

Due to the demand for gold in India, the gold price in India is always 5% to 10% above the international market. So at the international level, it is not at all a good deal to invest in gold.

There was a time when there were no other investment options other than valuable metals and real estate. Today, the banking system has reached many places, so there are many better options for people to invest in. You have many other options available around you in the market today apart for a banking facility, wherein if you invest, you can expect better returns, better safety, and better liquidity. But the knowledge about investments is less so you end up buying gold. You should discuss with your financial advisor and build a portfolio in such a way to balance risk-return with liquidity-capital gain aspect.

You should be psychology sage, understand to what extent it is good. It is good to have limited gold but it is not wise to invest most of the money in gold, you should make optimum utilization of your money and invest in different portfolio to get the best output by having less risk, more return required liquidity and add value by accumulation of wealth over a long period of time.

Over a period of time, the gold prices did not raise or the returns are not that great. Below is the study of gold rate trend in India since last 10 years:

This chart contains the average price for gold per year since 1964 – present. The prices indicated are for 10 grams of gold and prices are in Indian Rupees.

YearPriceYearPrice
1980Rs. 1,330.002000Rs 4,400.00
1981Rs. 1,800.002001Rs. 4,300.00
1982Rs. 1,645.002002Rs. 4,990.00
1983Rs. 1,800.002003Rs. 5,600.00
1984Rs. 1,970.002004Rs. 5,850.00
1985Rs. 2,130.002005Rs. 7,000.00
1986Rs. 2,140.002006Rs. 8,400.00
1987Rs. 2,570.002007Rs. 10,800.00
1988Rs. 3,130.002008Rs. 12,500.00
1989Rs. 3,140.002009Rs. 14,500.00
1990Rs. 3,200.002010Rs. 18,500.00
1991Rs. 3,466.002011Rs. 26,400.00
1992Rs. 4,334.002012Rs. 31,050.00
1993Rs. 4,140.002013Rs. 29,600.00
1994Rs. 4,598.002014Rs.28,006.50
1995Rs. 4,680.002015Rs.26,343.50
1996Rs. 5,160.002016Rs.28,623.50
1997Rs. 4,725.002017Rs.29,667.50
1998Rs. 4,045.00
1999Rs. 4,234.00

Note: Data were taken from bankbazar.com

Average yearly increment rate from 2008 till 2017 is 8.75%%

So better you get more insights on equity investments (12 to 18%) which have the potential to give better returns than gold, make wise decisions and invest in such a way to get good returns out of it and get out of these old age schools beliefs. You can use this invested money at the time of your need and during your daughter’s marriage.

“The Wiser you, the Smarter you.”

Nevertheless, there are many better options than this which depend on your risk appetite and your basic reason for investment such as liquidity, long term gain and wealth accumulation etc…, so don’t get emotionally attached to gold for investment. You are the right person to decide what is best for you but taking a decision in ignorance is like hitting the arrow in darkness, so look out for more insights and take help from your financial advisor.

Gold plays a major role in the Indian Economy as well. Have you ever thought how this demand for the gold impact the country’s economy, due to high demand we import more and end up in fiscal deficit? More the fiscal deficit, the more the taxes to balance the deficit budget of the county. The ultimate burden on the citizens of the country by paying taxes, increase in prices of commodities. So it is a double benefit when you opt for the right investment and not in gold.

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