Gold has always been perceived as a good investment and a good way to safeguard your assets while diversifying your investment portfolio. Gold, a physical asset, has an intrinsic value that simply cannot go away, making it a preferred option during economic uncertainty. Traditional gold investing methods lack flexibility, but new-age investment options like Gold SIP allow investors to take a more flexible and strategic approach to gold investments. In this blog, we will learn about the advantages of gold SIPs for holding gold and also how systematic investment in gold can help you with wealth maximisation at the same time managing a lot of risks related to the volatility in gold price.
These investment options are useful to you, whether you have plenty of experience or if you are a first-timer with no real background on what investing really is.
Table of Contents
Understanding Gold as an Investment
Gold is a valuable asset that has been used for thousands of years, and many individuals consider it a worthy investment for several reasons:
- Tangible Asset: Gold is a physical asset that you can touch. Unlike stocks or bonds, which exist only as numbers on a screen, gold is tangible; you can see and feel it.
- Value Store: Gold tends to retain its value over time. When currencies depreciate due to inflation, gold usually holds steady or even appreciates, protecting wealth.
- Haven: Many investors turn to gold during economic uncertainty or geopolitical trouble. Gold is considered a “safe haven” because it performs well when other investments, such as stocks, suffer.
- Tax Benefits: Gold is considered a safe asset. Combining different investments (such as stocks, bonds, and gold) can mitigate overall risk. When one investment goes down in value, others might go up.
- Demand and Supply: The price of gold can naturally be swayed by supply and demand. Its price can be influenced by mining output, demand for jewellery, and economic conditions.
- Hedge Against Inflation: Gold is frequently viewed as an inflation hedge. Gold can preserve its purchasing power better than cash as prices rise.
Gold can be a good investment for those who wish to protect their wealth, diversify their asset classes, and potentially profit from its appreciation over time. However, as with all investments, research and understand the market before participating.
Traditional Gold Investments: Physical Gold, ETFs and sovereign bonds
There are several different ways to invest in gold.
- Physical Gold—This is when you buy gold in coins or bars. You can hold stacks of gold, but you must also consider storing it.
- ETFs (Exchange-Traded Funds): Purchase exchange-traded funds that represent gold. You don’t own the gold directly; you own a piece of the fund that holds it. This method of investing is convenient because you don’t have to deal with storing the gold yourself.
- Sovereign Bonds are gold-price-linked bonds issued by the government. Investing in these bonds indirectly invests in gold and earns interest. (Now Discontinued)
Each option has benefits and risks, so choosing the one that best serves your investment goals is best.
Gold SIP: Systematic Investment Plan in Gold and Traditional Gold Investment
What is Gold SIP?
Gold SIP allows one to invest in gold in tiny periodic amounts over a certain period instead of making a lump sum purchase. It works similarly to an SIP for mutual funds, in which you invest a fixed amount of money in particular intervals — monthly, for example. You can invest this money into gold instead of stocks or mutual funds. This can be via gold Exchange Traded Funds (ETFs) or digital gold platforms. The goal is to simplify investing in gold, making it easier to obtain and manage gold and allowing you to build up your gold assets over time, hopefully profiting if prices vary.
Minimum Investment:
- Gold SIP: You may begin investing with a small amount, in some cases as low as INR 1,000. This allows newbies to get a foot in the gold market door for considerably less upfront costs. It enables investors to make incremental investments over time, which can reduce the impact of market fluctuations.
- Gold in Jewels: The minimum investment required to buy physical gold typically varies with the metal’s price. You can invest anywhere from 1 gm to a kilo or two; the minimum investment works out to a few thousand rupees, depending on the price of gold at a given point in time.
Benefits of Each:
- Gold SIP: This option lets you invest regularly so that your risk is reduced and your investment is easier to manage. It’s flexible and doesn’t take a lot of startup cash.
- Foundational Gold: You have a physical piece of something you can hold in your hand, always preferred by some during economic uncertainty.
Gold SIPs and traditional gold investments both have their pros and cons and the right one for you depends on your financial objectives and risk appetite.
Also, Check – Gold ETFs vs Gold Mutual Funds
On a parting note
Both gold SIPs and traditional gold investments have their respective benefits and can play varying roles in an investment portfolio. Gold SIPs help you invest in gold in a disciplined manner by systematically investing in smaller quantities at regular intervals. This reduces the risks of market fluctuations and inflation. It also allows for more flexibility and the ability to invest without the hassle of storing precious metals.
In contrast, conventional gold investments allow investors to hold the actual yellow metal or a stake in the price of the gold, through ETFs or through gold-backed sovereign bonds without owning the metal directly. At the end of the day, there are pros and cons to each strategy, and individual investors should consider their financial goals, risk tolerance, and investing time frame before choosing a road to take.
Choosing between Gold SIP and traditional gold investment largely depends on your preferences, risk appetite, and investment goals. Research and strategy are essential for attracting gold investors like any other investment.
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How does a Gold SIP work?
It employs a system that allows investors to make contributions of fixed amounts of gold at regular intervals and averages the cost of investment as the rate of gold keeps varying.
What are the benefits of investing in Gold through a SIP?
A Gold SIP allows disciplined savings, offers flexibility in investment amounts, and mitigates risk related to price volatility.
What Type of Gold Investments?
Gold investments can be traditional (physical gold, ETFs, and sovereign gold bonds) or new (mutual funds).
Is physical gold a good investment?
Yes, physical gold does make a good investment. It is a physical asset that retains value, though storage and security aspects must be considered.
Disclaimer: This article is for educational purposes only and does not intend to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme-related document carefully before investing.
Assistant Vice President – Research & Analysis
Akash Gupta heads the Research & Analysis department at BFC CAPITAL, where he combines in-depth market insights with strategic analysis. He holds multiple certifications, including:
- NISM-Series-XIII: Common Derivatives Certification
- NISM-Series-VIII: Equity Derivatives Certification
- NISM-Series-XXI-A: Portfolio Management Services Certification
- IRDAI Certification
With his expertise in equity, derivatives, and portfolio management, Akash plays a key role in providing research-backed strategies and actionable insights to help clients navigate the investment landscape.
