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Word Gold 1.2
Word Gold 1.2
1 OBJECTIVES
2.1.1 Investment
Gold is one of the most preferred investments in India. High liquidity and inflation-beating
capacity are its strong selling points, not to mention charm, prestige, and so on. Though there are
phases when markets witness a fall in gold prices, it won’t last for long and always makes a
strong comeback.
1. Why Should You Invest in Gold?
Safety, liquidity, and returns are the three criteria most conventional investors look for before
making any investment. While gold meets the first two criteria smoothly, it doesn’t perform
poorly at the last one either. Here is why you should invest in gold:
b. Gold has an inverse relation with equity investments. For example, if the equity markets start
performing poorly, gold would perform well. Considering gold as an investment option in your
investment
2. How to Invest in Gold?
The ‘golden question’ here is – how does one invest in gold? Traditionally, it was by buying
physical gold in the form of coins, bullions, artefacts, or jewellery. However, there are newer
forms of gold investments nowadays, such as gold ETFs (exchange-traded funds) and gold
funds.
Gold ETFs are similar to buying an equivalent sum of physical gold but without the hassles of
having to store the physical gold. Hence, there is no risk of theft/burglary as the gold is stored in
Demat(paper) form. Gold funds involve investing in gold mining companies.
Let’s understand different ways of investing in gold from the following table:
Gold Gold ETFs (Exchange Traded Gold Fund
Funds)
Investment in physical funds The investors buys a The investment is made in bullions
proportionate value of gold and companies involved in mining
but not in a physical form gold
No need for demat account The investors needs a demat No need for demat account for
account investment
Market fluctuation directly Change in gold prices affect Change in gold price does not
affects the price of gold that of gold ETF affect gold fund directly
No additional charges other Gold ETFs involve asset There’s a minimum charge to
than the physical gold itself management and brokerage manage the gold funds.
fees
Risks of theft and burglary Gold ETFs remove the burden Eliminates the risk of theft/burglary
associated with storing of trading gold in the physical and buffers investments to
physical gold form changing market fluctuations
Best suited for conventional Best suited for investors who Best suited for investors who
investors have the required time and expect high returns by taking
skillset to trade calculated risks
Gold mutual funds eliminate the risk of returns substantially by distributing investments over a
wide range of investment options. In other words, mutual funds work on the principle of
diversifying, i.e. not putting all eggs in one basket. Investors need to weigh their risk appetite and
goals before choosing such a mutual fund.
4. Gold Investment vs Mutual Funds
particulars Gold Investment Mutual Fund
Interest rates for gold loan varies from lender to lender and ranges from 9.24% to 17%. A
nominal processing fee ranging from 1-3% of the loan amount is also charged by some
lenders. It is always advisable to check and compare interest rate, processing fee, late
payment charges and pre-payment charges with the lender before going for the loan.
Action taken on customers who default varies from lender to lender. Some lenders charge
interest for the time overdue, which is usually higher than the rate a customer pays for the loan.
Further default on loan payment will result in a notice sent to you, informing you of the time
within which you will have to clear your obligations. Non-payment of loan by the final notice
date can also lead to lenders auctioning your gold articles to recover their outstanding loan
amount.
2.1.3 Indian Culture
Many people think that Indians are gold crazy. Though this statement cannot be completely
denied the truth is that Gold always had a special significance in all ages. One may recall that
Gold was one of the three gifts given by the three wise men on the birth of Jesus according to the
Holy Bible. There is also mention of the golden calf for idol worship and a statement that
Abraham was rich in gold. It may also be noted that the Hindu God Brahma is referred to as
Hiranyagarbha which means born of gold as he is born from the cosmic egg of gold. In Hindu
mythology, some of the gods and goddesses are described as golden hued with reference to their
beauty.
The importance of gold can be understood in the saying all glitters are not gold. It also can be
noted from the way events or achievements are named like golden anniversaries, golden jubilee,
gold medals, gold credit card etc. In India people buy gold anytime and not only during special
occasions like weddings, festivals or special events. Gold is also offered to Indian deities. The
Indian Hindu calendar even has auspicious days to buy gold like Dhanteras and Dassera. Gold is
also bought on festivals like Onam, Pongal and Durga Puja.
Family heirloom – Gold is part of every Indian household and is considered a family
heirloom by most Indians. Gold jewellery and ornaments are passed on from generation
to generation, in a bid to keep family legacy alive. It is common for most households to
pass on jewellery from a mother to a bride in weddings, irrespective of facts like change
in design trends or value. Gold is an extremely sentimental part of certain traditions and
continues to remain a cherished heirloom. Passing gold from one generation to another
also helps people save money on gold, avoiding ever rising gold prices in India.
Golden Gifts – Gifting gold is considered auspicious in India, with gold gifts forming an
integral part of all ceremonies. Gifting gold enables recipients to use it fruitfully, as it is
not only a key source of money but is also considered lucky. It is common to gift gold
during weddings, which can see brides bringing in huge quantities of gold to their new
homes, which is considered auspicious. A gift of gold is perhaps the highest form of
gifting in the country, showcasing the value of an individual and purity of intent. Gifts of
gold are common for birthdays and child births even in smaller towns.
Status Symbol – There is no bigger status symbol than gold in India, and Indians are not
shy to flaunt it. In a social setting with billions of people, gold is one element which can
help people stand out, literally shine in the crowd. Politicians, businessmen, actors,
officials, all love to show their gold to the world, giving them new highs. Gold has been a
status symbol in India since ages, right from the time of kings and queens to the British
and independent India has imbibed this into its blood. The more gold one has the more
power he/she has, an indication of their ability to purchase gold in spite of rising gold
rates.