Gold has rallied in India to a historic high. Gold ETFs in the last one year have given stellar returns, beating returns from debt, and equities by a margin. However, one needs to be cautious, as substantial returns from gold cannot be expected anytime soon.
Here are 5 reasons, you should not be investing a good amount of money in gold, though Gold ETFs are an exception.
1) Problems with gold jewellery
Gold jewellery is a bad investment. If you are considering it as an investment, remember you need to understand that there are making charges, wastage charges and you might end-up getting 15 to 30 per cent lower, than actual gold prices. The making charges on some ornaments is really high. This is why gold jewellery is a bad investment. Yes, if you want to buy for wearing the same, there is no choice.
2) Gold coins
Investment in gold coins can also be a bad. When you sell the gold coin, because of margins you fetch a lower rate. On the other hand, you have to invest more money, if you are worried of theft. This is because you would need to hire a bank locker for the purpose. This means an additional expenditure, which will increase the cost of the gold coins.
3) No regular income
Various investment allows you regular income. For example, if you invest in shares, there is a possibility of receiving dividends, bonus shares etc. However, when it comes to gold, one does not receive such a regular income. This makes the choice of gold, less attractive compared to shares or other fixed income yielding securities.
4) Returns not assured as compared to bank FDs
Most fixed deposits tend to give investors an assured fixed return. However, this is not the case with gold. For example, one is sure that a bank FD of Rs 100, will fetch Rs 110 after a year, if the interest is 10% per annum. There is no such assurance in the case of gold.
Gold can tend to be a little illiquid and you may find it extremely difficult to sell large quantities of gold. This is not the case with shares, where it is much easier to sell, as some of the shares are very liquid. In the case of gold, rates may also vary, while in the case of shares, a definite price is determined at a particular time.
All in all, if you are looking to invest large amounts in gold, you need to be a little more careful. In the last 5 years, gold has given very ordinary returns. It would be a good idea to be cautious.
Gold ETFs are an exception
If you are looking to invest in gold, than Gold ETFs should be the better proposition. They cannot be stolen, you do not need a bank locker and they are comparatively better, when it comes to liquidity.
Gold ETFs have given super returns in the last one year and a lot of money is flowing into them. All other forms of gold investment would be bad, and should be avoided. Buy gold jewellery, only if you want to wear the same.