We Indians are very affectionate with Gold for generations. Although Gold is purely an international asset class, it plays a very vital role in our portfolio.
Gold possesses certain properties & advantages:
- Hedge against inflation risk
- Protect currency risk
- Hedge against uncertainty
- Highly liquid asset
- Available in paper as well as physical form (fall into a financial asset and hard asset)
- Price is driven by the international market
- Provide diversification in a portfolio & mitigate risk
- Help to create wealth in the long term
- No credit/default risk
- Gold is a precious metal and carries a 'store of value'
- Reserve currency by many central banks
- Can be pledged for emergency need
- Can be invested as low as Rs. 500/-
- SIP option available
If we see the last 40 years' data of Gold from the year 1980 (@1000 / 10 grams) to the year 2020 (@51,000 / 10 grams), the rate of return given by Gold comes out to be @10.25% CAGR. Although Gold stood third in terms of the return in comparison with Real estate who scores second and Equity at the top.
There are the following ways to buy Gold:
- Physical form
- Jewelry shops / Bank / E-Commerce site
- Financial form
- Gold ETF
- Gold Mutual Funds
- Digital Gold or E-Gold
- Gold Sovereign Bonds
- Commodity Exchange (MCX / NCDEX)
- Gold Future & Option in the Derivatives segment
One can add Gold from 5% to 15% to have a better risk-adjusted return in the portfolio.
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