Gold is traditionally valued as an important investment option in India and finds place in most investment portfolios that especially seek diversification. For us Indians gold is not just a usual investment option, rather it has a significant place in our culture and traditions and is part of many ritual celebrations. Be it Akshaya Tritiya or Dhanteras or even a wedding, these occasions are incomplete without buying gold. So is it the right time to buy gold this Akshaya Tritiya? And should gold be part of your investment portfolio? Here are the answers to all these questions.
What is Akshaya Tritiya and the importance of buying gold on this day?
We all know that Akshaya Tritiya is a Hindu festival considered auspicious for making investments, especially gold investments. It falls on the third day of the Hindu month of Vaishakha, usually in April or May. The word ‘Akshaya’ in Sanatan Dharma means never ending and this day is traditionally considered to be quite auspicious to mark the beginning of new ventures. It is a traditional practice to buy gold and other precious metals on this day to invoke the blessings of Lord Vishnu and this practice is continued even today.
The importance of buying gold on this day comes from the belief that doing so will bring prosperity and good luck. It is seen as a way to honour and seek the blessings of the Hindu deities associated with wealth and prosperity.
Why is gold important in financial planning?
Gold forms part of most well-diversified investment portfolios. Let’s take a look at why is gold considered an important investment from a financial planning perspective:
1. Hedge against inflation
Inflation is the rise in prices of goods and services over time. When inflation is high, the purchasing power of money decreases. In such scenarios, gold is often seen as a hedge against inflation because its value tends to rise with the cost of living. This means that when the prices of goods and services increase, the value of gold may also increase. As a result, holding gold in a portfolio can help investors maintain their purchasing power over time.
Gold is a different type of asset compared to stocks, bonds, and real estate, therefore, adding gold to an investment portfolio can help diversify risk and reduce volatility. The primary reason for this is that gold often moves independently of other assets. In other words, when other assets like stocks or bonds are performing poorly, gold may perform well, and vice versa. This can help to smooth out returns and reduce overall portfolio risk.
3. Global acceptance
Gold is recognized and accepted as a form of payment and investment worldwide. It can be easily traded and converted into cash in almost any country. This makes it a convenient investment for those who travel or do business globally.
4. Highly liquid asset
Gold is considered a highly liquid asset because it can be easily bought and sold in various forms, such as coins, bars, and jewellery. It can also be conveniently converted into cash, as there is a well-developed market for gold trading in India and around the world. This means that investors can quickly and easily liquidate their gold holdings to raise cash whenever needed or when the gold prices seem to be at an all-time high like in the current scenario.
5. Gold prices tend to rise when the rupee depreciates
The value of gold is affected by various factors, including the exchange rate of the rupee against other currencies. When the rupee depreciates, the price of gold in rupees tends to rise. This is because gold is an internationally traded commodity, and its price is denominated in US dollars. When the rupee weakens against the dollar, it takes more rupees to buy the same amount of gold, leading to a rise in the price of gold in rupee terms. Therefore, by having gold in the investment portfolio, investors can compensate for the loss in the value of the rupee and safeguard their overall portfolio.
6. Lower risk as compared to equity investments
Gold is generally considered to have lower risk as compared to equity investment. This is because the price of gold is not dependent on the performance of a particular company or industry, as is the case with stocks. Instead, gold is influenced by broader economic factors such as inflation, interest rates, and global economic conditions. Therefore investment in gold tends to be less volatile than investment in equities.
7. Cultural significance
In India, gold has cultural and traditional significance and is often used for religious and ceremonial purposes. It is also seen as a symbol of wealth and owning gold is often considered a sign of financial security. This cultural significance has led to a long-standing demand for gold in India, making it an important part of the country’s economy and a significant part of the imports.
Historically, there has been a significant demand for gold on Akshaya Tritiya day, often resulting in a surge in gold prices for the day. Young investors who want to avoid buying physical gold can consider investing in other gold forms like digital gold, gold mutual funds, gold ETFs, etc.
Some of the downsides of buying physical gold include huge storage costs, risk of theft or loss, high making charges on gold jewellery, no form of regular or stable returns from buying physical gold, etc.
Some of the new-age and dynamic gold investment options in place of traditional or physical gold investment include investing in Sovereign Gold Bonds, Digital Gold, Gold ETFs, and Gold Mutual Funds.
Gold prices and stock markets have an inverse relationship. Gold prices tend to rise in falling stock markets and vice versa.
There is no one-size-fits-all answer to this question as the level of gold investment depends on many factors like current gold prices and availability of funds, the risk appetite of the investor, investment goal, etc. However, most experts believe that investors can allocate approximately 10-15% of their portfolio towards gold investment.