How much gold to invest in - and for how long?

Can investors hope to turn a profit by investing in gold at current prices?

 How much gold to invest in - and for how long

Gold prices have doubled over the last five years, from Rs 24,562 per 10 gm in 2015 to a notable Rs 49,175 per 10 gm on 9 July 2020. Spot gold prices crossed the Rs 50,000 mark on the Multi Commodity Exchange of India Ltd (MCX) for the first time this year. Globally, 2020 saw gold prices rising by 28%.

Gold as an investment has always been considered a safe haven, and this is unlikely to change. This year, gold was in great demand as uncertainties due to COVID-19 made it a very attractive option for investors. The pandemic shook global markets and forced investors to scout for investment avenues that offered stability and safety. 

However, with the price of gold skyrocketing, one might wonder if investing in gold at this time is a prudent decision or if it’s too late. Those who missed out on investing in gold at the beginning of the year might be considering investing now. And existing investors must be thinking of increasing their portfolio allocation to gold in the hope that the asset continues to shine. 

Related: Factors That Affect Gold Prices In India

Is gold still a good investment?

Gold is clearly the most preferred investment option during uncertain times. It acts as a fantastic hedge when the stock markets are turbulent. That is why gold investment returns in India have been high this year. Gold prices have consistently been rising since the beginning of the pandemic. This rise has attracted the attention of investors globally, who are exploring opportunities and evaluating instruments through which they can enter the market.

Why is gold an evergreen investment option?

Investors prefer gold because of its safety - and in recent times, its liquidity. As an investment option, gold is viewed as an asset that maintains its intrinsic value and purchasing power during difficult times and inflationary periods. Historically, gold has had an extremely long and fascinating usage in a diverse range. The demand for gold is always high for jewellery and investment. Gold is synonymous with safety and security, though it offers much more. Indeed, gold offers good returns and diversification against risk, uncertainty, and inflation. Returns from gold are most attractive over the medium to long term.

Over the last 10 years, the price of 10 gm of 24k gold has increased from Rs 16,000 to Rs 54,000. If you consider a longer time frame, it is pertinent to note that gold has delivered close to 8% compounding returns in rupee terms over the previous 100 years. The question remains as to what one should do in the current market conditions. Gold provides peace of mind because of its security and consistent returns. Gold is the best diversifier; it allows you to earn attractive returns from point to point, without touching stocks and equities. It can also be easily liquidated against any currency.

Related: Is Gold A Safe Investment Avenue In Bleak Times Like These?

Portfolio allocation of gold

Gold must certainly find a place in your investment portfolio. Despite the rising prices, the key is to maintain a healthy 10%-15% allocation towards gold in your investment portfolio. This is because the metal has repeatedly shown how it can remain range-bound for a very long time. Also, its returns have consistently been higher than inflation. 

But how much gold you should invest in depends on factors such as your existing investment plan and the time frame allocated to your goals. If you have certain short-term goals, gold may not be ideal. If your current portfolio has huge exposure to equity mutual funds and stocks, you must certainly increase your exposure to gold. You should hold on to your gold allocation until the achievement of the goals with the longest duration. Do not invest in gold for a short duration.

Investing in gold online

Gold as an investment is attracting most investors. Of late, instead of buying gold physically, there are many alternative options. Investing in gold online is one of the most efficient ways to own gold. This has given birth to several gold instruments in India. Gold Exchange Traded Funds (ETFs) in India are grabbing attention. And due to the gold rally this year, gold ETFs are witnessing a huge inflow. 

1. Here are some salient features of gold ETFs:

  • You need to have your own Demat account to invest in gold ETFs. 
  • They allow investors to convert a minimum of 1 kg of physical gold. 
  • They require a minimum investment of 1 gm of gold. 
  • They have neither entry nor exit loads and come with low management expenses.
  • They invest in physical gold of 99.5% purity - at least 90% in physical gold and the remaining in debt instruments, thereby performing in line with the actual prices of physical gold.
  • Gold ETFs can be traded in the market anytime, as they are listed on the stock exchange. 

Related: Here's How You Can Hold Gold In Demat Form Just Like Equity Shares Or Mutual Fund Units

2. Features of Sovereign Gold Bonds (SGBs):

  • SGBs are government securities, issued by Reserve Bank on behalf of Government of India, where investors pay the issue price in cash and the bonds are redeemed in cash on maturity. 
  • Through SGB the risks and costs of storage are eliminated.
  • Investors receive the market value of gold on maturity. 

3. Gold Mutual funds and their features:

  • Minimum Investment requirement

One needs to invest a minimum of Rs. 1,000 for 6 months in Gold Savings Funds in form of monthly installment as an SIP and Rs. 5,000 as a lump sum. 

  • Exit load

Gold Savings Funds may have an exit load up to 1 year and other charges towards commissions payable to the distributor and fund management charges.

  • Demat account

One does not need a demat account for investment in Gold Savings Fund. However, Gold Savings Fund has higher expenses.

  • Liquidity

Gold Mutual Funds can easily be bought or sold based on NAV for the day. 

Gold PricesGold Prices

Last words

Gold is going to remain an inherent part of investment portfolios for decades to come. It will continue to be bought both physically and electronically. Whether you buy physical gold or in the form of gold ETFs, you stand to gain. Cautiously increase its allocation in your overall portfolio and stay invested long-term to reap the benefits. 

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas. 




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