Are Gold Investments Better Than SIPs?

A decision to invest in gold does not always have an investment value but a sentiment quotient attached to it too. However, with the influx of newer opportunities like sovereign gold bonds by the government and digital gold, people have started valuing the investment value in gold as well. It is natural and even prudent for an investor to wonder if a particular asset is better than others. 

Investing in gold vs SIP is not an either-or situation. To maintain a healthy diversified portfolio, you need to have your hands on maximum asset classes in the right proportion, in-line with your investment objectives and risks. The best way to decide is to carefully weigh your risks and goals and see which is the best option for you.

Let’s look at the different pros and cons of investing in gold vs mutual funds.

Advantages of Investing In Gold

Here's a list of Advantages of Investing In Gold:

•  Varying Forms

Gold itself can be bought in various forms and sizes. Gold can be bought in coins, bars, chains and bangles and the various kinds of gold ornaments that are available. It can be bought in different sizes and there are different carats (metric units used to measure mass in gold) of gold available so you can see which suits you best according to your finances.

•  Tangible Asset

Gold is one of the few assets that is tangible. Purchasing gold is much easier compared to purchasing other tangible assets such as real estate. Physically you can walk into any shop and purchase it and digitally, gold is just one click away. The fact that this investment has a ‘touch and feel’ aspect attached to it, goes well with many Indian investors.

•  High Liquidity

Gold is highly liquid. If you have physical gold, you can walk into any jewelry shop and sell your gold. Virtually, different platforms have different rules but you still get an early redemption on your investment if you do not want physical gold on delivery but only the money value.

Must read: Tips to Invest in Gold    

• Does Not Need Technical Research

With gold, you can just check the daily value of the commodity and buy/sell in accordance with your finances. You do not have to research the commodity itself. However, you do need to do minimal checks on the authenticity of the jeweller and his/her business in case of physical gold just to prevent yourself from getting duped.

Disadvantages of Investing In Gold

•  Costs And Charges

As on October 16, 10 grams of 24-carat gold will cost more than Rs 52,000. The initial cost of investing in gold is very high. So the initial investment cost to buy a small quantity of this commodity is high, as evident. When it comes to digital gold, some platforms allow you to invest as low as Re 1 as well. Also when it comes to physical gold, the making charges can go as high as 10% as well of the total value. Making charges are not redeemable for money when you sell your gold back and you lose out on that amount.

• Returns

Unlike mutual funds or stocks investments, investment in gold does not pay any dividends or any sort of extra returns. However, you can track the gold price regularly and sell it at a higher price than you bought to get some extra value on your investment.

• Risks Involved

While digital gold does not carry many risks, physical gold carries the risk of storage, loss due to theft, breakage, damage to the jewellery and more.

Gold vs SIP Mutual Fund: How Should You Pick?

The decision to pick between investing in gold vs mutual funds investment is not to decide which is better than the other but to decide how much to stay invested on which side. You cannot predict which investment: gold or mutual funds, will perform better. Many-a-times equities and gold stand on two ends of the curve: when one performs better, the other dips. This is not a standard rule but happens most of the time.

Conclusion

Also when it comes to mutual funds, the category cannot be seen on a generic note because mutual funds itself has a lot of diversification. Within mutual funds also there are equity and debt funds wherein equity returns are higher but volatile whereas debt fund returns are moderate but fixed.

Also read:

5 Ways to Invest in Gold in 2021

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.