Dhanteras, Diwali 2023: Diwali and Dhanteras festivals are typically characterised by a pickup in demand for jewellery and other products made of precious metals like gold and silver. It is also an opportune time for investors to add some glitter to their portfolios. Many individuals see gold not only as a valuable metal but also as a symbol of wealth and prosperity, and an excellent source of financial security.
Historically, there was only one medium available to those looking to invest in the yellow metal: physical gold. Today, investors have a variety of options to choose from, be it online or offline, to put their money in gold.
Zeebiz.com spoke to a number of experts and compiled a list of methods for investing in gold this Dhanteras:
Physical gold: A traditional method of buying gold, preferred by many during festivals, is in the form of gold jewellery, coins, and bars.
Gold mutual funds: These are nothing but investment funds that hold assets related to the precious metal.
Gold stocks: Investors can park their funds in stocks of companies engaged in the mining or manufacturing of the yellow metal.
Gold derivatives: A range of futures and options contracts linked to gold as an underlying asset are available in the market today.
Sovereign Gold Bonds (SGB): These are government-backed securities linked to the market price of gold wherein the bearer avails an interest over and above the market-linked return.
Gold ETFs: A gold ETF or exchange-traded fund is a passive investment instrument based on the price of the precious metal.
Digital gold: This is yet another method that enables investors to link their cash to the market value of gold in a digital form.
Which gold-buying method is best?
According to CA Manish Mishra, Fractional CFO & Regulatory Compliance Expert, the best method to buy gold varies from person to person, and depends entirely upon the investor’s monetary goal. “For a long-term investor, physical gold or gold ETFs are appropriate,” he told Zeebiz.com.
Money managers emphasise the need to understand the contours of each investment option to park funds in gold, based on personal preferences, given the wide range of instruments available today.
Minted coins and bars provide tangible ownership of gold and high purity levels and are also the most liquid, making them a reliable choice for those who value physical assets, said Vikas Singh, MD and CEO at MMTC-PAMP, a gold refiner and fabricator.
Investors must pay attention to the aspect of purity while buying gold, he added.
What about those inclined towards owning gold in the form of ornaments?
Buying gold in the jewellery form may not be the best option for individuals aiming to tap the monetary value of the precious metal. This is due to the instance of making charges involved with gold jewellery and other forms of physical gold products, which dilute the return even over longer periods of time.
Buying gold jewellery is only suitable for those looking to buy gold for personal use, said Prithviraj Kothari, MD, and CEO, RiddiSiddhi Bullions, a trading and manufacturing company.
On the other hand, if one wants to invest in gold for price appreciation, gold bars, and coins can be bought in physical form, whereas gold ETFs, SGBs, and digital gold can be bought in paper form, Kothari added.
Which factors to consider while investing in gold?
Investors should consider various factors such as risk, returns, liquidity, and tax benefits, aligning their choice with their specific goals and preferences, while putting their money in gold, according to Palka Arora Chopra, Director at financial services firm Master Capital Services.
Is it a good time to add gold to the investment portfolio?
According to Singh of MMTC-PAMP, a joint venture between state-run MMTC and Switzerland-based bullion brand MKS PAMP, investors should add gold to their investment portfolio for the long term.
“Precious metals have consistently proven their worth as a safe and reliable investment option over the years and they offer valuable diversification benefits, helping investors spread their risk due to economic uncertainties,” he added.
How much weight should gold have in your portfolio?
According to RiddiSiddhi Bullions’ Kothari, investors should ideally dedicate at least 15-20 per cent of their portfolio to gold.
A portfolio with gold gives a better return than one without gold, Kothari stressed. “Gold has given 11 per cent CAGR return every year for the last 20 years… So those who are under-allocated must invest in gold this Diwali season,” he said.
However, some experts differ in this regard.
CA Mishra said investors should keep in mind that past performance does not assure future effects, and it is essential to consult a financial advisor for personalised recommendations.
Besides, many experts commonly emphasise the need to understand one’s investment objective, time horizon and risk profile when it comes to putting their money in gold.