Protect your portfolio with gold: A timeless safe haven
Tue Dec 31 2024
For centuries, Indians have trusted gold as a safe-haven investment, particularly in times of economic uncertainty. Its value is often viewed as stable and it tends to perform well during periods of high inflation and market volatility.
Data shows that gold and equity markets have an inverse correlation. For instance, during the 2008 financial crisis, gold posted a positive return of 5.8%, while major stock indices saw substantial losses. Similarly, in 2020, amid the Covid-19 pandemic, gold delivered a 25.1% return, reinforcing its reputation as a reliable hedge asset. Hence, gold provides diversification to investment portfolios.
At a time when equity markets are experiencing heightened volatility, the
addition of gold to the portfolio helps in reducing
the overall portfolio
volatility. Amid growing global uncertainties, investors are increasingly
turning to gold as a safe haven. The prospect of US interest rate cuts has
further boosted gold's appeal.
Today, apart from traditional forms like jewellery and coins, gold is also available in more convenient investment options such as gold ETFs (Exchange Traded Funds). Gold ETFs aim to generate capital appreciation by investing in gold as an asset class. When you invest in a Gold ETF, you essentially own a portion of the fund’s underlying gold assets, and the value of your investment is directly linked to the price of gold in the market. Gold ETFs provide a handy way for investors to gain exposure to gold without the need to physically store it.
Why Gold ETFs?
The price of physical gold includes making charges (which vary across sellers), and taxes. One of the biggest risks of buying physical gold is the chance of getting fake or low-quality items. Additionally, storing physical gold has the risk of theft and damage. Bank safe deposit vaults or secure home safes and insurance come with additional costs.
Compared to physical gold, gold ETFs typically have lower transaction costs and
eliminate the need for storage and insurance expenses. If liquidity and ease of
buying/selling are priorities, gold ETFs offer more convenience than physical
gold. Gold ETFs can also serve as collateral for loans, providing added
financial flexibility for investors.
What are Gold ETFs?
Gold ETFs are passively managed schemes that invest in gold bullion of 99.5%
purity and track the domestic price of gold closely. Gold ETF units are traded
on the stock exchange and can be bought and sold just like company stocks on
the exchange. Governed by SEBI, gold ETF aims to ensure transparency and
security, with units held in demat accounts. So you need a demat account to
store the ETF and a trading account to buy and sell ETFs.
Since Gold ETFs are traded on the stock exchange, they offer liquidity and
transparency, along with the ease of buying and selling at market prices
throughout the trading day. Investors can also benefit from the absence of
storage and security concerns, which are associated with holding physical gold.
Another advantage of Gold ETFs is that you don’t need to save up a large amount
of money to invest.
Gold ETFs combine the flexibility of stock investment and the simplicity of
gold investments. Gold ETFs have low expense ratios, which means that you get
higher returns.
All this makes Gold ETFs an attractive option for investors seeking to
diversify their portfolio or hedge against inflation and currency depreciation.
Conclusion: As an investment option, one can buy and sell gold ETFs anytime,
anywhere online. It provides investors with exposure to gold as an asset class
without the hassles of owning physical gold in a cost-effective manner. It
ensures transparency, authenticity and purity of gold, reducing the risk of
impure products. To maximise returns, it is advisable to avoid making partial
withdrawals or exiting early. Instead, align your investments with a long-term
financial goal for better outcomes.
Source: https://economictimes.indiatimes.com/