Come Diwali and Dhanteras, many Indians gear up to buy gold on what are traditionally considered to be auspicious days for this purpose. Even otherwise, Indians are known for their love for gold especially in physical form as gold coins, bars and jewellery. Though, many have also transitioned to buying gold in digital form - sovereign gold bonds (SGBs) and gold ETFs (exchange traded funds).
Moneycontrol spoke to a few gold buyers to understand their psyche; what makes them want to buy gold? Is it the lure of an investment or the lustre of physical gold?
Gold for marriage, safe haven too
Devanshee Dave, an Ahmedabad-based Finance Content Specialist has been buying gold biscuits since 2017 with the idea of converting them into jewellery in future (wedding). “If I buy jewellery now, the designs may get outdated. Instead I can buy gold biscuits now and pay making charges later when I want to convert them into jewellery. Even otherwise, the gold biscuits will appreciate in value over time. For example, in 2005, 10 gm of 24 karat gold was priced at nearly Rs. 5,000. This has reached Rs. 60,000 plus now which implies a return of nearly 1100 percent,” says the 28-year-old Dave.
Dr Akshata V Oswal, a Mumbai-based cataract & LASIK eye surgeon, has been a regular buyer of gold for almost a decade now. She has a young daughter and she wants the future gold requirement for her daughter’s wedding to be taken care of without any hassles. Oswal also invests in stocks and mutual funds and says gold is a portfolio diversifier. “When stocks (equity) are going down, gold prices are always up. If we invest in both, then something is always giving us returns.”
Elaborating on this, Ghazal Jain, Fund Manager- Alternative Investments, Quantum AMC says, “Fundamentally, equites and gold have different price drivers. Economic expansion and risk taking typically bode well for equities. Risk aversion and economic slowdowns or economic shocks divert flows to gold. This has historically made gold a good addition to an all-equity portfolio.”
Shinmin Bali, who does not believe in buying gold in the form of jewellery, views gold as an asset that is safe and that will offer her some returns (not the highest returns) within her overall portfolio. Bali works as a B2B Content Operations Manager with YouGov, a market research and data analytics company.
30-year old Farhan Shaikh, who joined his family business after completing his MBA degree, loves gold for its easy liquidity. He talks about how gold came to their rescue during Covid-19 times in 2020. “Gold was our saviour then. We mortgaged our gold with a bank to meet our operational expenses when we ran out of liquidity. Later, we managed to get our gold back.”
Dr Oswal too, values gold for its liquidity and says, “I can easily sell my gold coins and biscuits to the jeweller I have been buying from. But so far, I have not had the need to sell any gold.”
Also read: Gold buying on Dussehra: Which is the best way to invest?
Physical or digital gold
Shaikh buys some physical gold each year and doesn’t mind paying making charges. “At least someone can wear it (jewellery), it does not lie idle in the locker,” he explains. He also invests in SGBs.
Bali, on the other hand, has only bought SGBs so far. “I don’t see value in gold jewellery as we wear it once a year. SGBs are safe and make sense,” says Bali. Does the eight-year lock-in not deter her? “I have invested in SGBs for the long term. I keep my liquid money elsewhere. I am not a big spender. I can lock-in my money,” she says.
Talking about not investing in SGBs, Dave (who buys gold biscuits) says that selling them before maturity implies tax on capital gains. She further adds, “I may look at gold ETFs in future if I’m not buying physical gold then.”
Note that early redemption of SGBs is allowed from the fifth year onwards but any capital gains on their sale is exempt from tax only if held for eight years.
But is buying gold coins or biscuits the best way to accumulate gold? Suresh Sadagopan, Founder, Ladder7 Financial Advisories, a SEBI-registered investment advisor feels that unless you are anticipating an extreme situation (a war, for instance), buying physical gold is fundamentally flawed.
“When you buy a gold coin or bar, you could land up paying 10-12 percent extra over the current bullion rate. Even if you want to buy jewellery later, what you need is a particular sum of money that you can hold in the form of any asset (such as equity) that grows and can be easily liquidated. You don’t need to collect gold coins to buy gold jewellery,” emphasises Sadagopan.
Also read: Pranav Jewellers’ Rs 100-crore scam: Where is the shine, where is the pain?
When to buy
When it comes to buying gold on auspicious days such as Akshaya Tritiya and Dhanteras, when prices tend to be higher, Dave says she prefers to buy when prices are lower by doing a macro (interest rate stance) and micro analysis (demand vs. supply, historical price trend etc.). Shaikh, who buys gold 3-4 times a year, too, thinks similarly. He says, “If the stock market is at a high, I don’t invest in stocks and mutual funds. Then I look at gold prices which are usually inversely related to stock market performance.”
But Dr Oswal follows a different approach. “Irrespective of the price, whenever I have any surplus and if any SGB issue is open, I invest. Whenever SGBs have not been available, I have bought gold ETFs. I also buy gold coins or biscuits on Dhanteras and Diwali.”
Investing in gold and other assets
While Bali is interested in gold, she does not see value in buying it in the form of jewellery. Also, she wants to explore equities now. Dave too, does not believe in going overboard on gold and having concentrated exposure to one asset.
Still, the lure of gold remains. Financial advisors recommend having a five to-15 percent allocation to gold in one’s portfolio. Sadagopan says: “Like real estate, gold is prone to long-term cycles. So, invest in gold with a 20-year horizon.” The current uncertain times augur well for a gold investment, he says.
Jain recommends investing in gold in a staggered manner because she says even though gold has historically given competitive returns over long time periods, there may be cycles where it doesn’t perform. “For instance, gold bought in 2011 (prices had peaked then) didn’t have much capital gains in the ensuing 8-year period. So was the case for gold bought in the 1980s until the mid-1990s. A systematic investment plan (SIP) in gold mutual funds (funds that invest in gold ETFs) can therefore be a smart way to build allocation.”
Talking about the various routes to invest in gold, Dev Ashish, a SEBI registered investment advisor and Founder, Stableinvestor.com, says that when one looks at gold purely as an investment (not for consumption as gold jewellery), some allocation can be made to non-physical avenues such as gold ETFs and gold bonds (SGBs) that don’t have physical safety and storage issues.
Ashish further adds, “Also, the extra 2.5 percent interest income along with the fact that capital gains are tax-free when held till maturity, makes SGBs a solid and tax-efficient way to invest in gold for the long term. Gold ETFs have the benefit of better liquidity but due to the recent changes in non-equity instrument taxation, they are no longer that tax-efficient.”
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