Investing in gold for your child’s education: Pros and cons

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Why gold is so popular

Gold holds a unique position in Indian culture as a harbinger of security and prosperity. Parents purchase gold in order to finance the heavy future expenditures like children's higher education or marriage. Gold is a hedge against inflation and currency, providing a sense of security. Its cultural importance also makes it an extremely in-crowd financial planning investment for the long term.

Benefits of investing in gold

One of the greatest advantages of gold is that it preserves wealth. Gold, over a period of time, retains its value and even appreciates, particularly when the economy fluctuates. Gold investment is highly liquid, as the investor can easily sell the investment and cash it out. Gold also diversifies the investment portfolio, reducing the risk exposure. For parents, owning physical gold or financial products based on gold can be an emotional and financial asset to meet future expenses.

Limitations of investing in gold

Gold is not devoid of disadvantages. Physical gold means there is a problem of storage and security, and there may be making charges and purity issues while purchasing jewellery. While gold prices rise in the long term, short-term price variations can be extremely high, and thus the timing of selling and buying matters. Gold also does not provide fixed returns like fixed deposits or other investment schemes. Also, returns on gold are unpredictable and lower than other types of investment over the same timeframe.

Alternative options for child’s future planning

Besides physical gold, parents can also choose to invest in gold ETFs, sovereign gold bonds, or SIPs of mutual funds. These could offer greater liquidity, lower cost ratio, and future increase in value with continued exposure to gold or asset classes. The best among them would be based on the application of money, risk appetite, and at which time the future expenditure would be incurred.

Making a decision

Parents need to identify whether gold is suitable for their overall financial plan. It can be useful as part of a diversified approach, especially for long-term goals like the education or marriage of a child. Gold, if coupled with other instruments like fixed deposits, equities, or insurance plans, can address growth as well as security in the future.