Add gold to your portfolio and give it stability

Physical gold: Gold is a tangible asset that has intrinsic value and is considered a safe-haven asset during times of economic uncertainty. It is also a globally recognised currency that has been used as a medium of exchange for thousands of years.

Among the most common ways to invest in gold as an asset class is to buy physical gold in the form of bars, coins, or jewellery. However, this can be expensive due to the transaction costs, purity concerns, and storage fees involved. Moreover, physical gold is subject to the risk of theft or loss and may require insurance and security measures.

Gold ETF: An alternative approach is to invest in gold through exchange-traded funds (ETFs). Gold ETFs are passive investment instruments listed on the stock exchanges, enabling investors to invest in gold without worrying about storage, purity, or theft.

Gold ETFs track the price of gold and reflect its performance. On the other hand, they come with ancillary costs such as management fees, potential exit loads, and tracking errors. Tracking error is the difference between the return of the ETF and the return of the underlying asset (gold).

Sovereign Gold Bonds (SGB): SGBs are government-backed bonds that are issued by the Reserve Bank of India (RBI) on behalf of the Ministry of Finance. They offer a unique tax advantage: the interest income from these bonds is taxed according to the investor’s tax bracket, but if the SGBs are held until maturity, the capital gains are exempt from taxation.

Also read: Should you invest in Sovereign Gold Bond Scheme 2023-2024 Series II?

Hence, from a tax perspective, SGBs can be an efficient medium for investing in gold. As SGBs are government-backed bonds, there is no need to worry about storage, purity, theft, etc. However, they have an eight-year lock-in period to avail of tax-free capital gains, which may limit the liquidity and flexibility of the investment. Also, they are available only to individual investors and not to corporates.

Gold structured product: A structured product is a packaged investment strategy that can have a variety of underlying assets, such as an index, commodities, currencies, gold, or a basket of stocks. It may even include a combination of debt, equity, and commodities.

The majority portion of the investment is locked to safeguard the capital, while the remaining is put into high-yielding instruments to clock gains on the underlying asset. One of the important features of such a product is capital preservation.

Also read: MC30: Your guide to picking the most suitable mutual fund scheme

Most structured products operate on a simple principle: allow investors to participate in instruments that yield better returns. This is a great way for investors to participate in gold without worrying about other things.

In conclusion, incorporating gold into your equity portfolio can significantly diminish volatility while preserving returns.

However, there is no one-size-fits-all solution for investing in gold. Each investor should weigh the pros and cons of different methods and choose the one that suits their risk appetite, time horizon, and objectives. Investors are advised to consult their financial advisors before investing.