Is it Good to Invest Hard Earned Money in Gold?

Before we make investment in gold, we need to know Why to invest in gold? What are the different ways to invest in gold?

Gold is a part of every house in India. People invest in gold for various reasons like high liquidity, Tangibility, Hedging, Diversification, Small Investment and wealth creation.

Investing in gold is good because it is hedge against inflation. Over the years investment in gold has given better returns beating the rate of inflation. Gold rate was Rs 14792 per 10 grams on April 2009 and it is Rs 30200/- per 10 grams today. Gold has delivered a return of 7.4% CAGR (Compounded Annual Growth Rate) over the last 10 years. Gold has given good return on investments over long term.

Gold is negatively correlated with equity investments, when equity is delivered poor, gold has performed better. Gold is used as hedging instruments at the time of recession. Gold prices are less volatile compared to the equity investments.

It is more liquid as there is always demand for the gold in global markets. Gold can be pledged in financial institutions for immediate cash. It can be accumulated even in small amount of less than Rs 500/- so Gold is accessible asset for all class of people. Gold has appreciated over the years by creating wealth to the person who possesses it for long period.

Gold is also one of the asset classes which should be in your portfolio for better diversification.

There are some disadvantages in gold investment too. Physical Gold may not generate income on investment, only capital appreciation. People may lose money in commissions and charges while buying gold jewelry, Storing of large volume of gold safely may be difficult and Individuals has to pay 3% GST on value of gold purchased.

Mentotax recommends to have at least 2 -5% of your portfolio in gold and gold related investments. Capital gains on the gold investment are subject to Income Tax.

If Gold is held for less than 36 Months, Capital gains are added to the income of the individual and taxed as per the applicable tax slabs

If Gold is held for more than 36 months, Capital Gains are taxed at 20% along with the applicable cess and surcharge for the gains.

Wait for our next blog to know more on different ways to investing in gold.

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