Gold has always been an important aspect of Indian culture and history. Be it the generic Indian fascination with the metal or its symbolic importance, owning gold has always been a sign of prosperity and wealth in Indian culture for centuries. From being used as currency to being adorned in jewellery, gold has always held significant cultural and historical importance.
Akshaya Tritiya is one of the most auspicious days in the Hindu calendar, celebrated with great fervour in India. This day is considered very important for buying gold as it is believed that any investment made on this day will bestow prosperity and an abundance of wealth.
This Akshaya Tritiya, one of the ways you can take exposure to gold is via gold ETF. Gold ETFs, or exchange-traded funds, are mutual funds that track the price of physical gold. They offer a convenient and cost-effective way to invest in gold without actually owning physical gold.
Gold ETFs have gained popularity in recent years due to their simplicity and liquidity. They are traded on the stock exchange just like any other stock, making it easy for anyone to buy or sell them during the trading hours. Safety is a big concern for investors while buying or investing in gold.
In that sense, gold ETFs are better placed as they are held in the investor’s demat account and are accessible anytime. This ensures that, unlike physical gold, gold ETFs do not incur storage and insurance costs, making them a more cost-effective option. The concerns surrounding purity of the yellow metal is allayed as each unit of gold ETF is backed by physical gold with a purity of 99% or more.
For an investment portfolio perspective as well, gold is an attractive asset class given its ability to act as a hedge against inflation and its low correlation with other asset classes. Between 2000-March 2023, gold generated 9.3 percent average annual returns in USD terms and 12 percent average annual returns in INR terms. In the same period, Nifty generated approximately 11.2 percent CAGR.
Over the last couple of years, gold has been receiving support from India, Russia and Chinese central bank buying which is a potential positive indicator for the asset class. At a time when inflation has been at higher-than-normal levels in most parts of the world, geopolitical issues flaring up and the resultant uncertainties, at such instances having an allocation to gold can be helpful.
Also, investing in gold globally is seen as a hedge against currency devaluation. Since gold prices are denominated in US Dollar, strengthening of the US Dollar makes gold attractive for an Indian investor perspective.
So, this Akshaya Tritiya, consider investing in gold ETFs and add a little glitter to your investment portfolio. Gold is a worthy addition to any portfolio given its long-standing significance and proven investment potential.
As a general thumb rule, an investor can consider allocating up to 10 percent of the portfolio to the yellow metal. By investing in gold ETFs, you can enjoy all the benefits of gold without the hassle of storing, insuring, or physically possessing the metal.
Chintan Haria, Head - Investment Strategy, ICICI Prudential AMC
Disclaimer: The views and recommendations given in this article are those of the author. These do not represent the views of MintGenie.