Stock Analysis, IPO, Mutual Funds, Bonds & More

'Correct yourself – Gold ETFs are as good as gold’

Following the “save as you go” method, many women try to save as and when possible, setting aside small amounts regularly from their monthly budgets.

Last Updated: Mar 06, 2020, 11.39 AM IST
By Chirag Mehta

Following the “save as you go” method, many women try to save as and when possible, setting aside small amounts regularly from their monthly budgets. When the amount becomes large enough, they visit their jeweler to convert those savings into gold. An interesting and almost an ideal way to invest in gold.

It is true that gold investments have delivered handsomely over the years, but there are a few ways to better the investment process.

Every Indian family has some part of its inheritance in gold which is passed from generation to generation, with the advice of safeguarding the small treasure and the blessing of adding more to it before it is to be handed over to the next generation. And this is how investing in gold forms a part of the very soul of Indian tradition and culture.

While religiously following the tradition of owning gold, the inefficiencies involved in the process have been totally overlooked. A lot of these inadequacies had to do with lack of options to own gold. Our grandmothers and mothers knew the family jeweller’s shop as the only place to buy real gold from, and they would purchase gold largely in the form of physical jewelry as this was the only form of owning gold permitted by regulations then. And they would proceed with their purchase without much of a thought about premiums and making charges.

Today, however, there are more convenient ways like Gold Exchange Traded Funds (ETFs) to own gold, especially if you are looking to invest in gold as a store of value for inflationary times and as a safeguard for your other investments. Unfortunately, lack of awareness about ETFs still causes investors to choose the traditional way over the more affordable and convenient one.

Every penny counts
Of course, we understand that women will always share a special bond with jewelry and hence gold will always be bought more as ornaments. But there is a large part of gold investments that are done for savings and to create wealth. It is this portion that should be bought more efficiently through avenues like Gold ETFs.

If you have a doubt about Gold ETFs being paper money, you may correct yourself – Gold ETFs are as “good as gold.”That is, each unit is backed by pure physical gold holdings stored in secure vaults and are completely insured. Gold ETFs offer you affordable pricing, takes care of all your purity and storage issues and most importantly are highly convenient. Total convenience with no hassles and negligible hidden costs!

And if you buy small pieces of jewellery, try to exchange it later for a larger set, stop the practice immediately. Because when you buy gold from the jeweller in form of jewellery, he adds on a premium and a making charge and you end up paying about 5-20% higher than the actual value of the gold. And when you give your old jewellery to remake in a new design, he cuts a discount on the value of the gold. In both trades, you lose out on the price.

A rule of thumb says that you end up nearly losing out your initial capital completely on account of premiums, making charges, resale discounts, etc, when you engage in more than three times exchanging old for new jewellery.

Indian women follow the same cost averaging approach to buy gold after accumulation of sizable savings. It usually happens that the savings fall short to buy the intended quantities because of price increases. In reality, the cash that you save keeps on losing value when measured in gold. It is thus ideal to buy smaller quantities of gold may be ½ gram as you save instead of leaving your cash lying idle. However, buying smaller denomination coins to meet this end can be extremely expensive, as coins come at a premium and smaller the denomination usually larger is the premium.

Gold ETFs help to serve the purpose here, since they are available in denomination as low as ½ gram and are ideal for accumulation. Also, many accumulate gold to plan for their daughter’s marriage, for this long term requirement, Gold ETFs serve the purpose of systematically allocating to gold. For example, buying ½ gram Gold ETF every week for the next 20 years would build a gold savings of 520 grams which is more than half a kilo of gold.

Overcoming the sentiment attached to holding gold physically is likely to be beneficial to your long-term savings. Women can lead being responsible buyers and break the traditional restraints and own gold in a more efficient manner. Nothing stops from making Indian women the great fund managers that they rightly deserve to be.

(Chirag Mehta, Sr. Fund Manager- Alternative Investments , Quantum Mutual Fund)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

Also Read

Stockpile of global gold ETFs soars on flight to safety

Gold ETFs attract Rs 731 crore in April amid coronavirus pandemic

After 6 years, gold ETFs witness inflows in FY20

Global stash of Gold ETFs hits new high

Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links

Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service