The goal of investing is to increase the value of the money invested. The returns received from investing act as a source of income and can be used to meet all your financial needs. However, the mode of investment you choose is very important. Your financial investments can take different forms: mutual funds, unit-linked investment plans, endowment plans, stocks, bonds, and more.
You may have some reservations about investing in gold. This article will give a detailed account of the things you need to know before choosing gold investments.
The Benefits of Gold Investments
Gold investment has been one of the most preferred modes of investment for a long time. It is an ideal investment option because it provides protection against inflation and has little correlation with other types of assets.
Escaping from inflation is not possible. However, gold is the only option that helps beat inflation and keeps its value. The reason is that the value of gold increases as our cost of living increases. People often choose gold loans as it helps them to take credit that ensures a guaranteed loan amount; also, because its value keeps going up.
Investment portfolio diversification
It is necessary as it helps balance the risk. The gold value is inversely proportional to that of other traditional investment options. So, it acts as a buffer against the volatility of markets.
Market forces: supply and demand
Since gold is a precious natural resource, there will always be a demand for it. Therefore, gold investment is an excellent option for you to consider.
The liquid nature of gold
The liquid nature of gold makes you rely on it, even in pressing times. In case of an emergency, you can sell it because of its constant demand.
Balances currency devaluation
Since financial markets are uncertain, currencies lose their value. However, in the case of gold, this is not the case. Gold investors are free from the problem of currency devaluation. The currency would generally become weaker, while gold would strengthen. A unique example of the same is gold loans.
Useful even in the worst of times
You can rely on gold because it survives both financial and geopolitical uncertainties. The value and demand of gold never decline. It always stays constant and does not deteriorate with time.
Gold always provides the best returns. It is best to be relied on, even in the worst of times. Unlike stock markets and real estate investments, gold rates will not fall dramatically. Thus, it protects your investment in the long run and helps you get good returns.
No effort is required for maintenance.
Unlike investing in properties, buying gold requires no maintenance. You can easily buy and store it without any extra effort.
Can be passed on to coming generations
The value of gold never changes, even after decades, and can be passed on to future generations. Thus, gold investment is an excellent option for you to consider.
Various Forms of Gold Investment
- Direct investment in physical gold
The traditional way of investing is simply by buying physical gold directly. But the negative aspect is that there are chances of theft as well as storage issues. The positive is that you can sell it in the future at a higher price.
- Gold exchange-traded funds (ETFs)
They are not material like physical gold but paper representations. It is similar to direct investment, and investors can buy proportionate shares of a collective vault.
- Mutual funds in gold
It is another method that liberates investors from the duty of buying and storing physical gold. Here, the investors invest not in gold but in gold mining companies.
For easy purchases of gold, jewellers offer various schemes. These vary from one jeweller to another. According to this scheme, investors should invest a specific amount for a particular period to generate a certain amount to buy gold.
- The digital form of gold
It is an investment option that is becoming increasingly popular. It works like a digital payment option where investors can buy or sell through fintech platforms.
- Investment in sovereign gold bonds
It is an investment option reserved by the Reserve Bank of India, where investors can buy the bonds in digital, physical, or dematerialised format. These bonds are securities that you can trade in the form of gold.
- Gold loans
People often prefer taking out gold loans. These involve keeping their gold possession at the credit giver’s possession and taking a value against it. As gold prices keep going up, it is one of the best forms of loan.
Gold loans are simple to obtain.
We cannot predict the emergencies that might come. So, prior preparations are necessary. Hence, it is always better to go for gold investment. You can depend on gold investment because it is easy to liquidate it in the market. Nowadays, many financial institutions provide gold loans. In most cases, you can get the loan within a day, depending on the overall value of the gold. You will get the gold back without any damages after the gold loan is cleared.
Taxation of Gold Investments
Every investor should know about taxation on returns. The tax differs according to the mode in which you choose to invest in gold.
- Digital gold: If you own it for less than 36 months, it is non-taxable. However, gaining returns for a long time can result in a 20% tax with a surcharge and a 4% cess.
- Taxation on physical gold: In the case of short-term capital gains, your tax is in accordance with your applicable income tax slab rate. Long term, you must bear 20% of your returns. A 4% cess is also present in the transactions.
- Gold ETFs and mutual funds: Gold investment through these modes requires a 20% tax with a 4% cess in the long run. In the short run, tax is calculated based on your slab rate.
Things To Keep In Mind Before Gold Investment
- Do thorough research before investing in gold because the price depends on market forces like supply and demand.
- If you plan to buy physical gold, do the necessary things for its safety and security.
- The price of gold can sometimes move directly to the stock markets. Therefore, it is vital to ensure that the portfolio is immune to every adversity.
You can read more about goal loans, investment strategies, and other parameters on Piramal Finance’s personal loan page to understand more about this unique form of investment and explore their products and services.