For First Time investors - Gold Investment options

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With gold prices going through a multi-year rally, investors have started looking at the metal as another asset class in their portfolio. However, many people have given undue importance to gold as an investment. First-time investors are at risk of putting their savings in the asset for all the wrong reasons.

Why to Invest?

Gold is seen as one asset whose prices can never go down. If you have also been led to believe this, you need a reality check. True, gold provides a good hiding place when there is turmoil all over. However, only recently, we saw gold prices tank by more than 20% in a matter of weeks. Invest in gold because it has little correlation with other asset classes, such as equities and debt, which helps diversify the portfolio. Jayant Manglik, president, retail distribution, Religare Broking, agrees. "Gold adds an element of diversification to the portfolio," he says.

Where to Begin?

Make a clear distinction about buying gold for consumption purposes or as an investment. If you are considering your first investment in gold, go for paper gold. Buying physical gold entails high making charges, with concerns about its purity. On the other hand, gold ETFs offer investors the triple benefits of security, convenience and liquidity. Investors are also assured transparency in pricing and can liquidate their holdings quickly at the prevailing market prices. You would need a trading account and a demat account to invest in gold ETFs. If you do not want the hassles of opening a demat account, you can consider gold funds, which are essentially funds of funds that invest in gold ETFs. This avenue offers the convenience of investing through the SIP route. However, keep in mind that you will pay the fund management fee to the gold fund and bear the expense ratio charged by the gold ETFs in its portfolio.

 

Top Rules for Gold
Invest purely for diversification.
Invest in gold for diversification and stability of your portfolio. Don't be misled into believing that gold prices will only rise over time.

Limit your exposure to 10-15%.
Do not try to get rich with gold. Contrary to belief, investing in gold carries a high degree of risk. Up to 15% of the portfolio is enough to gain a meaningful exposure to the asset.

Happy Investing!!

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

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