There is a famous saying “A friend in need is friend indeed”. If we talk in financial terms this statement can be rephrased as “A financial asset in need is a financial asset indeed”. Normally every individual investor builds a portfolio using a lot of financial assets but is he aware which option in the lot prevents him from drowning in times of economic crisis such as currency failure, inflation, and stock market crash? If you are a serious investor and love your hard earned money, you already know the answer i.e. investing in Gold.
Gold as an investment option has the same property as it has as a precious metal i.e. it’s durable. No other investment option endures the test of time so well and hence it’s universally accepted as one of the best financial assets to possess in rough economic conditions. Not only investors but even nations try to hoard gold in the time of crisis. In this article let’s find out what are the investment options available through which an individual investor can take exposure together with exploring the pros and cons of investing in them.
Jewelry:
| Pros | Cons |
| ● Investment is very easy. You only need cash to invest.● If you invest early it saves you a significant expense at the time of marriage. | ● You own it in physical form, so threat of theft.● Making charges offsets the profit in terms of price appreciation (varies from 10% to 35% at times).● Normally it’s a virtual investment as people don’t want to sell it. |
Investment rationale
Indians invest in jewelry for multiple reasons. They can use it for marriage, wear for parties, and get it liquidated in the time of crisis, though we hardly see anybody liquidating it unless extremely urgent. Moreover, accumulating jewellery is a sort of tradition and hence many families still find it the best way to invest in Gold.
Gold Coins:
| Pros | Cons |
| ● Value is quite comparable to international gold price.● One of the most recognized and reliable way to invest in gold● Investment is very easy. You can buy it from banks, local shops etc.
● Big investment is not required to take exposure as it’s available in smaller denominations. ● Easy to store. ● Very liquid. |
● You own it in physical form, so threat of theft.● You pay a premium of 4% to 10% while buying and same % is discounted while selling resulting in lesser overall return. |
Investment rationale
Since most of the gold coins are sold by banks, the purity is guaranteed unlike jewelry where you have to rely on your known jeweler. Investors who do not want to take any chance but still want to invest in physical gold go for gold coins.
Gold Bars:
| Pros | Cons |
| ● Value is quite comparable to international gold price.● Premium/discount paid while purchasing and selling is the least● Most recognized and reliable way to invest in gold.
● Investment is very easy. You can buy it from banks, local shops etc. ● Quite liquid. |
● You own it in physical form, so threat of theft.● Initial investment can be large as smaller denominations are not available.● Increased risk of forgery.
● Storage cost for large bars. |
Investment rationale
If you are comfortable with storage and large initial investment amount, this can be one of the best options as loss in terms of premium/discount is the least. Issues of fake purchases can be taken care if you buy from an authentic source.
Gold ETFs:
| Pros | Cons |
| ● Investment is very easy. You only need a demat account for investment.● No concept of losses in terms of premium or discount.● Safe as no physical possession.
● Low initial investment. ● Various options available because of technology advancement like SIP etc. |
● You don’t possess it in physical form so might be at loss in crisis situations (war, bankruptcy etc).● Might have liquidity issue.● Complex structure.
● Transaction fee and annual maintenance charges. |
Investment rationale
These are relatively new options and are not as popular as physical Gold. Investors who usually invest using demat account are aware of this option. They provide very easy access to gold investment without having the burden of physically owning it.
Gold Mining Stocks:
| Pros | Cons |
| ● A way of taking indirect exposure.● Capital appreciation potential is more as compared to direct investment.● Safe as no physical possession.
● Low initial investment. ● Highly Liquid. |
● You don’t possess it in physical form so you might be at loss if the Gold deposit yield is less than expected or if the company faces bankruptcy.● Deep research required before investing.● Volatile and risky as compared to other options. |
Investment rationale
It’s one of the most creative investment options and hence requires a lot of careful research before investment. If you are a seasoned investor and enjoy making your hands dirty this can be an option for you as you can strike gold if you choose the right one.
Conclusion:
Gold reserves are held in significant quantity by many nations and they are synonymous to money. Gold investment acts as the best shield against economic downturn and crisis situation, so it’s a wise decision to take exposure via any of the routes suggested above, which suits you the best.
Very useful. It is written nicely. One thing I would like to ask – What are the pros and cons of buying through National Spot Exchange, I mean from Commodity market?