Most individuals in our financial world fall into one of the two categories: those who are content with what they have, and those who aren’t content until they’ve met all of their goals and desires. The latter group’s mentality may be summarised as “my way or the high way”. Which is a terrific ideal attitude since it keeps one determined to work really hard, attain objectives, and afford life’s pleasures.
Even though most Indians have a fixed income, they also have a fixed monthly expenditure. Which means that the savings they have left are almost always insufficient to buy the things they want and enjoy their lives to the fullest. As a result, financial investments, such as mutual funds, real estate, gold, and so on, are popular instruments for this aim. These investments enable a person’s savings to be multiplied. In this article we are specifically talking about investing in gold.
About investing in gold, it is without a doubt one of the most ancient type of money which is still used worldwide. Many of our forefathers used it decades back and still continue to do so today, as evidenced by the numerous references to gold found throughout Hindu mythology and other ancient Indian texts. It is given to brides-to-be and to those celebrating other significant life events because it is thought to be a bringer of good fortune.
Let’s return to the topic of financial investment and see if investing in gold in 2022 will be a good idea or if you should look for something else instead. Also, if gold investment is a good idea, then how does one go about it? This question has many sub-questions, and we’ll do our best to answer them all.
To keep the content easy while yet being detailed, we will begin with the fundamentals and general knowledge before moving on to more particular and technical information. To round out the discussion, we’ll use the Mumbai gold rate as an example and use it to illustrate various concepts. As a result, let’s get right down to the business at hand.
It’s a good idea to invest in gold for the following reasons:
When it comes to financial investments, it is not a matter of the heart but of the mind that we are talking about here; thus, let’s take a closer look at all the logical reasons why investing in gold is better than other options.
Liquidation is simple and quick.
Investing in gold is a great way to safeguard yourself in the event of a financial emergency, as it is one of the most liquid hard assets. It’s very simple to find a buyer for your gold if you’re short on cash. There will always be people willing to buy gold. Irrespective of the form, Gold is a highly liquid asset.
Practical Inflation Protector
Gold has proved time and time again to be an effective inflationary hedge. You don’t have to worry about losing money when inflation hits and currency rates fall in the global market because gold rates are almost unaffected by inflation. Other than inflation gold along with silver and US Dollar maintain their status as safer assets, therefore during times of economic recession and global economic crisis all the funds move towards these safer assets. Also, According to the Indian context, gold is an excellent investment because the Rupee (USD/INR) hasn’t performed well in 2021.
Helps in Creating Assets
And we all are well aware of this. For example, gold jewellery are handed down from generation to generation as a sign of family prosperity and, as previously said, it has a particular position in each Indian home. Apart from this Gold investments also help individuals to strengthen their ITRs, a gold holding in the balance sheet of the individuals not only helps them strengthen their ITR but it also helps them get loans in case of cash crunches in course of business.
Better Bet for New investors
“No, I’ve never done anything like that.” Is this true? If so, you should know that buying gold is a lot easier than investing in real estate or any other asset classes. Investing in gold is a safe bet for those who are new to the process, since there is very little danger involved.
The Downsides of Gold Investment
Consider all of the drawbacks of gold investment before making a decision on whether or not to do so in 2022, because you don’t just buy the positive aspects of a product, you also buy the negative ones. Take a look at this:
Gold’s Poor Returns on Investment
If you invest in gold jewellery, you’ll never get a return on your physical gold investment. For this reason, the price of jewellery is not just dictated by gold prices, but also includes the costs of manufacturing, and this is just the beginning. As gold is only half the tale after it is purchased.
In contrast, when you sell your gold, the making charges are not taken into account and you only get paid for the pure gold based on that day’s gold rates, not the total cost of the gold itself. Mumbai’s gold pricing was 27,000/- INR for 10 g of 22-karat gold in December 2015, assuming that you paid 63,000/- INR for 20 g of the precious metal, which includes the manufacturing costs.
In the event that you decide to sell it for whatever reason, and you take it to a store that only offers you a price for the gold in the necklace, not for the stones or the copper that has reduced the weight of the necklace to just 13grams, and the price for 13 g of 22-karat pure gold in 2022 is only 60,000 INR, it is clear that you have made a loss on the transaction, and low return rates are one of the disadvantages to consider when investing in physical gold.
The solution for this problem would be to buy basic Gold bars which don’t have complex designs. The benefit of doing so will be that you will get an exact gram to price exposure to with gold and in any time you sell it or transform it into customised jewellery.
Storing Gold in Physical Form Is Dangerous
Keeping actual gold in our home is vulnerable to the same dangers as keeping cash in our wallets. Because it’s as easy to steal as anything else in our home, gold investors need to be extra cautious with their money. Although investing in gold via another instrument such as a gold ETF or digital gold is a better option, but still you are not completely safe; you are still exposed to internet security threats.
Isn’t a reliable source of income.
People invest to secure a future income stream for themselves or their children once they retire. Because you buy gold the amount you invested gets blocked, there is no ongoing profit flowing into your bank account. So, although gold may be one of the finest physical investments, it fails when it comes to generating an income. Gold is a long term investment because the fund gets blocked and there is no interim cash inflow from it, unlike Stocks or Interest bearing assets such as bonds which pay a fixed amount of interest periodically to the investors.
In 2022, what are the best ways to buy gold?
For the purposes of this part, we will discuss the various methods of investing in gold, as well as any potential benefits or risks associated with each.
Investing in gold via ETFs is a way to own the actual commodity. To get started, you only need a DEMAT account, trading account, and broker fees that range from 0.25% to 0.5%, depending on the brokerage firm you use. Gold ETFs are a better investment option than physical gold if you’re looking for real returns on your gold investment.
Gold ETFs put your money in 99.5% pure gold and roughly 90% of your investment money is placed in physical gold, while the remainder is invested in debt instruments. So it provides you with very good exposure to the yellow metal. In India, there are a lot of Gold ETFs.
Learn more about investing in Gold ETFs here:- https://www.goldlane.in/blog/gold-vs-stocks-understanding-their-features-differences/
Sovereign Gold Bonds
There are mutual funds that solely invest in gold ETFs, called as gold savings funds. Investors don’t have to open a DEMAT account to participate in these funds. Investing in gold savings funds is a safe decision if you’re a novice since you don’t have to worry as much about keeping track of the success of your investment and because it’s a methodical approach. Other than that one can always look out for Sovereign Gold Bonds, also known as SGB. They work just like a bond, and the good part is that they pay regular interest. Since, Gold Bonds is already a very lengthy topic we will cover it some other day.
You can invest in Digital Gold through any gold investment platform and your purchases will be backed with gold assets stored securely in digital vaults entitled to you. As simple as it goes, buying Digital Gold comes with the advantage of being able to purchase assets for as low of an amount as you want. You do not need to save up to a certain amount to be able to buy gold. Now buy Digital Gold for as low as Re.1. All the gold that you buy keeps adding up to create more significant assets for you. You can buy more gold or sell any of it whenever the prices seem suitable for you. Furthermore, you can request your gold assets to be delivered to you in tangible physical form, such as coins, bars, bullions, etc., as per your requirement.
The oldest way to invest in gold is to buy it in the form of a physical metal. Buying gold is essentially an investment in gold. However, because we are strictly speaking in terms of investing, there are two methods in which you may invest in gold: via jewellery and through bars and coins. However, although gold bars and coins are similar to jewellery, they vary in that they are created of pure gold and do not contain any manufacturing fees, unlike jewellery.
Gold bars and coins are always better investments than jewellery if you are only interested in physical gold.
You can see from the above mentioned example that return rates for gold jewellery are almost never profitable because of the manufacturing costs which we call as the making costs.
Gold ETFs with an Equity Base
Investing your money in companies involved in gold mining and extraction, or in the marketing of gold, is what an equity-based fund provider does. The performance of these companies, in addition to gold rates, is heavily reliant on a systematic approach and skilled fund management. However in India most funds try to invest in physical gold and debt instruments rather than equity based instruments. You can always check where your money will be invested in the fact document of the ETF you are investing in.
Investments in gold are subject to certain taxes.
Prior to moving on to the conclusion, let’s briefly discuss the taxes that are imposed on gold investments under the Income Tax Act.
If you invest more than Rs. 30 lakh, you will be subject to a wealth tax of 1% of your total investment.
There is a 20% capital gains tax on physical gold and the Gold ETF (Gold Trust).
So before investing you should always go through the tax calculations. However, if you are planning to invest a small amount with a long term holding expectation then this rate shouldn’t hinder your investments.
Everything from the fundamentals of gold investment to the benefits and drawbacks of it has been covered in this article. You should now be able to make an informed decision about whether or not you should invest in gold in 2022 based on this information.
It is easy to ignore actual physical gold if your goal is not to build wealth or to leave a legacy for your children and grandchildren. Instead, you may put your money into other types of investments, such as gold stock, gold ETFs or gold mutual funds.
Last but not least, do not invest in gold if you expect it to provide a steady stream of income; remember that it is a one-time investment that can only be sold once if you are a retail participant.