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A Comprehensive Guide to Gold Investment in Future

People in this world can be divided broadly into two categories, one includes the people who settle with whatever they have and the remaining are the people who don’t settle but fulfill their dreams and needs one way or the other.

The approach for the latter group can be described by the statement that it is either my way or the high way and this is a great optimal attitude as it keeps one motivated to work and achieve all the goals and be able to buy all the luxuries of life.

Well, a majority of the Indian population lives on a fixed income, and coupled with the fixed monthly expenditure, there is always almost a fixed amount of savings left which is really not enough to buy the luxuries and live life to the fullest.

Therefore, one of the tools which are popular for this purpose is the financial investment which allows a person to multiply his savings by investing it into one of the multiple options available like mutual funds, real estate, gold, etc.

Now, speaking of gold, it is easily the oldest form of currency in use on earth. It was used by our ancestors centuries ago and is still used today, its mention can even be found in the epics of Hindu mythology which highlights the position that gold holds in the Indian and especially Hindu culture.

It is considered a carrier of good luck and thus is gifted to the new brides and other important milestones of life as well. Now coming back to the point of financial investment, today, we will try and answer the question of that is it wise to invest in gold or if you should look somewhere else.

Also, if investing in gold is in fact a great way to go, then how should one invest in gold? There are lots of further subdivided questions that arise when we head on the way to answer this question and we will try to cover them all.

To keep the information simple and elaborate at the same time, we will start from the basic and general info and then will make our way into a more specific and technical domain. One more thing, to make the discussion more information we will take up the example of the gold rate in Mumbai and will stick to this to explain the concepts whenever required. So, without any further ado, let’s jump right into the discussion for today.

Major Reasons for Investing in Gold

As we mentioned above, gold has a lot of significance in Indian culture but we are not talking of emotions here, in fact, the financial investment is not a matter of the heart but the Mind, and thus, let us take a look at all the practical reason that make a gold investment in future a suitable medium over other options.

  • Simple and Easy to Liquidate: One of the major reasons for making any financial investment is that you consider it as a backup in case you need it in the future and gold is one of the easiest to liquidate hard assets. In case you happen to be in need to use your gold to make ends meet, you just have to sell it to the buyer you prefer. There are always buyers ready to buy the gold. But keep in mind that the return rate is not exactly what you expect, instead, it is the opposite, especially in the case of physical gold, you get less than what you invest.
  • Proven Hedge Against Inflation: It has been tested time and again that gold provides a strong shield against inflation. Gold rates remain almost unaffected at the time of inflation and therefore, you do not have to suffer a loss when the inflation hits and even the currency rates go down in the global market. Now, talking in the Indian context, the value of the Rupee has not been performing well in 2023, and therefore, investing in gold is not a bad idea at all.
  • Wealth Creation: Gold is a precious metal and we all know that. As we have mentioned earlier, gold holds a special place in any Indian household and is considered the wealth of the family, for example, the gold jewels are passed on from one generation to the other as a legacy and a symbol of family wealth.
  • Tangible Resource: Have you ever tried to invest in real estate or tried to make any financial investment? If yes, then you must be knowing that buying gold is much easier than real estate or anything else. It is safe for the people who are trying to start doing investments as very less risk is involved with the gold purchases.

Drawbacks of Gold Investment in the Future

To find out exactly, if it is a good idea to invest in gold in 2023 lately, one must consider the cons of it because you don’t only buy the pros, you buy the cons too, and thus, you should what are the downsides you will be facing by investing in gold in 2023? Let’s have a look:

Poor Returns on Physical Gold

Return rates of physical gold are never profitable if you invest in gold jewelry. The reason is that the price of jewelry is not only determined by the gold rates but also includes the making charges and this is just the half story i.e. when you purchase the gold. now, when you sell the gold, the story is totally different, the making charges are not considered and you get the money only for the pure gold based on the gold rates of that particular day.

Take, for example, the gold rate in Mumbai during December 2015 was 27000 Indian rupees for ten grams of 24-karat gold, and assuming that you bought a gold necklace of 20 grams for about 60,000 Indian rupees which include the making charges too.

Now, due to some reason you want to sell it and you go to a shop that quotes the price only for the gold that necklace contains and not for the stones it has or the copper which weighs it down to only 13grams and the cost of 13 grams of pure gold in 2023 is only 55000 Indian rupees in 2023, obviously, it is a loss deal for you and thus, poor return rates are one of the downsides to keep in mind while investing in physical gold.

Safety Issues with Storing Physical Gold

Storing physical gold has the same security threats as any cash in our house. It is equally vulnerable to theft as anything else in our house and thus, investors have to be more cautious about their assets when investing in gold.

Although going for some other form of gold investment like gold ETF or fund of fund is a better way to go this way too, you are not totally secure, you are vulnerable to internet security attacks but the difference here is that this security is a threat is equally likely to happen to anyone or even everyone and even other investments too like mutual funds, etc.

Not a Source of Steady Income

People make investments to arrange for a source of income for their post-retirement life or for their children. Gold investment is not the one made for this specific purpose as you invest in gold once and you sell the gold once, there is no continuous profit involved that flows into your pockets. So, Gold probably is one of the best hard assets but when it comes it investing for an income, it fails.

How can You Invest in Gold in 2023?

There are multiple ways of investing in gold and in this section, we are precisely going to talk about that along with information on how beneficial or safe is it to invest in each of the options.

  • Gold ETF: Gold ETFs are funds that invest in physical gold. All you need is a Demat account, a trading account and payment of brokerage fees which are usually just .25% to .5% of the cost of Gold ETF and you are good to go. Considering the performance of gold rates, gold ETF is a better option to invest in gold instead of physical gold, if you are talking of some real profitable returns. Some of the popular gold ETFs in India are Invesco India Gold ETF, Kotak Gold ETF, SBI gold ETF, etc. To be more technical, gold ETFs invest your money in 99.5% pure gold and about 90% of your investment money is invested into physical gold while the rest if remaining, is invested in debt instruments.
  • Gold Fund of Fund: Gold Fund of Funds also known as Gold Saving Funds are mutual funds that invest in gold ETFs only. Now, the upside here is that the investors are not required to have a Demat account and thus, it is a bit simpler than investing in Gold ETFs. If you are a noob in the investment arena, then gold-saving funds are a safe bet to play because you have to worry less about tracking the performance of your investment and it is a systematic investment method too.
  • Gold Mining Stocks: Investing in gold mining stocks is similar to investing in the stock market and the difference is just that gold mining stocks are related to the companies that are attached to gold mining. The performance of these stocks is more or less governed by the gold rates while other factors that should be considered are production cost, effective management, hedging activities, etc.
  • Physical Gold: Investing in physical gold is the oldest method of making a gold investment. Whenever you buy gold, it is basically a gold investment. But, since we are speaking strictly on gold investment grounds, then there are two ways by which you can invest in gold i.e. Jewellery and Bars and coins.
    • Gold Jewellery: Gold Jewellery can be easily bought from any jeweler and the return rates purely depend upon the current gold rates.
    • Gold Bars and Coins: Although, gold bars and coins are not very different from the jewelry they differ in the fact that they are made of pure gold and do not include any making charges. If you want to invest only in physical gold, then gold bars and coins will always be more profitable than jewelry. As clear from the gold rate in the Mumbai example mentioned above, you can easily observe that return rates of gold jewelry are never profitable due to the making charges.
  • Equity-Based Gold Funds: The vendors that provide equity-based gold funds basically invest your money into companies that are connected to the mining and extraction of gold or are responsible for the marketing of gold. the systematic approach and skilled management of funds are of great importance here as it determines the performance of these companies besides gold rates.

Taxes Imposed on Gold Investments

Before moving on to the conclusion, let us quickly talk about the taxes that are imposed on gold investment under the Income Tax Act.

A wealth tax is imposed on investments over 30 lakhs and the tax amount is 1% of the total investment.

20% of the capital tax is imposed on physical gold and Gold ETF.

The Bottom Line!

So, we discussed everything from the basics of gold investment to the pros and cons of it to various methods of investing in gold. Now, we hope that with this information, you can zero in on a decision that whether a gold investment in 2023 will be profitable for you or not.

If your motive is not wealth creation or investing in gold in order to leave some legacy behind for your future generation, then you can easily overlook physical gold and invest somewhere else like in gold funds or equity funds.

For the new entrants in the world of investment, the gold fund of funds would be a simpler and safer bet where the investor can make some profit along with learning about investments.

Lastly, do not invest in gold while having expectations for a continuous source of income, remember, it is a one-time investment that can be liquidated only once.

All in all, we hope that you found the discussion informative and helpful. Thanks for reading.

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