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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
Gold investment can offer protection against inflation, currency depreciation, and economic uncertainty.
The saying “A diamond is forever” could just as easily apply to gold. Deeply ingrained in Indian culture, gold has long been a symbol of wealth and continues to hold significant value as an investment. Gold was treasured for its enduring worth even before modern investment strategies emerged. Today, it remains a highly regarded commodity, reflecting cultural heritage and financial security.
No matter how many investment tools come in the market, the shine of gold never dims. From traditional gold to Sovereign Gold Bonds, gold is still popular among investors. This blog will help you understand how gold investments can benefit investors.
As an investor, you should always look for investment opportunities that generate profit and are safe from market volatility. Gold is one such asset that investors consider highly profitable. Let us take a look at some of the reasons why you should invest in gold:
Gold has historically maintained its value over time, making it an effective hedge against inflation. As the cost of living rises, the value of gold typically increases, preserving purchasing power.
Everyone wants an investment option that is not affected by market fluctuations. Gold is often considered a safe option during economic uncertainty or geopolitical instability. Investors flock to it because it retains value and provides security when other investments may falter.
For investors, it is very important to diversify their portfolios for comprehensive growth. Including gold in your investment portfolio diversifies your assets, reducing risk. Gold often performs differently than stocks and bonds, balancing potential losses in other investments.
Liquidity means ease of selling something in the market. Gold is highly liquid, meaning it can be easily bought or sold in various markets worldwide. This ensures you can quickly convert your investment into cash when needed.
The abundance of something can decrease its value, but gold’s limited and finite supply enhances its value over time. Unlike paper currency, which can be printed in unlimited quantities, gold’s scarcity supports its long-term value.
If you want something that protects your portfolio and good market returns, gold should be your choice. Gold protects against market volatility and economic downturns. Its value tends to rise when other assets lose value, providing a buffer for your investment portfolio.
Demand for gold is consistently growing due to its use in jewelry, technology, and as an investment. This increasing demand from emerging markets further supports the value of gold and the potential for its price appreciation.
When we hear gold, the image of gold bars emerges in our minds. However, gold exists in several other investment formats. Before you understand how to invest in gold, let us take a look at these options:
As the name suggests, gold is often purchased in physical form. Investing in physical gold involves buying gold through jewelry, coins, or bars. This traditional method allows investors to own tangible assets but also involves storage and security concerns. However, the government has set a limit on gold ownership. According to the Central Board of Direct Taxes (CBDT), the gold limit in India limits without showing any proof for a married woman is up to 500 grams.
Equivalent to physical gold value, gold ETFs are funds that trade on stock exchanges and invest in physical gold. They offer the advantage of liquidity and ease of trading like stocks, without the need to store physical gold.
Just like mutual funds, gold mutual funds invest in gold-producing companies and sometimes directly in gold itself. These funds provide exposure to gold prices through a diversified investment portfolio managed by professionals.
High gold investment returns can be obtained by investing in gold mining stocks. It means buying shares of companies involved in gold extraction and production. These stocks can offer higher returns than physical gold but come with higher risks linked to the performance of the mining companies.
Gold futures and options are contracts to buy or sell gold at a predetermined price on a specific date in the future. These financial tools are used for protecting yourself from unexpected changes, but they might require a good understanding of the market.
Imagine a situation where the gold owned by you is equivalent to having a paper. Gold certificates represent ownership of gold without having to store the physical metal. Issued by banks or financial institutions, they allow investors to trade gold conveniently.
In this age of digital money, gold is also going through a massive reform. Digital gold allows you to buy and sell gold online through platforms or apps. It offers the convenience of owning gold without physical storage, with the gold held in secure vaults by the service provider.
Sovereign Gold Bonds (SGBs) are government-issued securities denominated in grams of gold. They offer interest payments in addition to the appreciation in gold prices, providing a secure and cost-effective alternative to owning physical gold.
Gold funds are mutual funds or exchange-traded funds (ETFs) that invest primarily in gold and gold-related assets. These funds allow investors to gain exposure to the price movements of gold without the need to purchase and store the metal physically. Gold funds are managed by professional fund managers who aim to track the performance of gold prices.
In the past, people often preferred buying physical gold, be it jewelry or gold bars. However, owning physical gold presents safety concerns and storage space requirements. This is where gold funds become a convenient alternative, providing a secure, space-efficient solution for investing in gold.
Taxes on gold investments can vary depending on the type of gold you choose and how long you hold it. Let us take a look at the most common gold investment options and their tax implications:
Taxation of digital gold is similar to physical gold. Short-term gains are taxed according to your income slab rate, while long-term gains (held over 3 years) are taxed at 20.8% with indexation benefits.
These paper-based options also follow the same tax structure as other taxable assets. Short-term gains are taxed as per your income slab, while long-term gains (over 3 years for ETFs purchased after March 31, 2023) are taxed at 20.8% with indexation.
If you are convinced to invest in gold, you must go through these considerations before making your final decision:
Gold has a long history of holding its value over time, even during periods of inflation or economic instability. While the price of gold fluctuates, it tends to be a safe haven asset, meaning it can preserve your wealth during uncertain times.
If you buy physical gold, like coins or bars, you will need to consider secure storage. You can store it at home in a safe, but this can be risky in case of theft. Safety deposit boxes at banks can be an option, but they typically come with annual fees. There are also specialized gold storage facilities available, but these also involve fees.
Including gold in your investment portfolio can help spread your risk. Since gold’s price movement often has an inverse relationship to stocks and bonds, it can help balance out losses in other asset classes during market downturns.
The documents you’ll need to invest in gold depend on the type of gold investment you choose:
Generally, no specific mandatory documents are required to purchase physical gold from a reputable dealer. However, for high-value transactions (often exceeding ₹2 lakhs), the seller might ask for your PAN (Permanent Account Number) card for verification purposes. This helps them comply with anti-money laundering regulations.
To invest in digital gold, you will need to open an account with a platform that offers this service. This could be a brokerage firm, a digital gold provider, or even your bank (if they provide this service).
When opening an account, you’ll likely need to submit KYC (Know Your Customer) documents. These documents are standard for most financial institutions and serve to verify your identity and address. KYC documents typically include the following:
Investing in gold ETFs and SGBs often involves requirements similar to those for digital gold. A demat account is required to hold these gold-linked securities. Opening a demat account typically involves submitting KYC documents like PAN cards, Aadhaar cards, etc.
Some platforms might allow you to invest in SGBs directly without a Demat account. However, KYC verification would still likely be required.
The list of reasons is long if you are thinking why you should invest in gold. Gold can be a valuable addition to your investment portfolio. For instance, it has a long history of holding its value even during economic downturns, acting as a safety net for your wealth. While it doesn’t generate income, its price rises when other investments fall, offering some portfolio stability. Additionally, gold is a physical asset with limited supply, and its demand can increase during uncertain times. It is a relatively secure investment, with various storage options available depending on your preference.
Now that you have gone through everything related to gold investments, you can understand how it impacts your portfolio as an investor. With several investment options, gold can be relied on as a beneficial asset. You can buy gold in physical format or store it digitally in banks through gold ETFs. No matter what form it is in, gold is always considered an excellent asset choice. After analyzing your portfolio, budget, and financial goals, you can invest in gold for a more fulfilling investment experience.
1
Investing in gold can provide a hedge against inflation, currency devaluation, and economic uncertainties. It also diversifies your investment portfolio and preserves wealth over time.
2
The price of gold is influenced by factors such as global economic conditions, inflation rates, currency fluctuations, central bank policies, and geopolitical events.
3
You can invest in gold by purchasing physical gold (coins, bars), buying gold ETFs, investing in gold mining stocks, or through mutual funds focusing on gold.
4
Gold is generally considered a safe investment as it tends to retain its value over time and can provide stability during market volatility. However, it doesn’t generate income, and its value can fluctuate.
5
The best way to buy physical gold is through reputable dealers, banks, or mints. Ensure the gold is certified and comes with proper documentation.
6
Store physical gold securely in a home safe or safety deposit box at a bank, or use professional vault storage services for added security and insurance.
7
Yes, you can include gold in your retirement savings plan by investing in a Gold IRA, which allows you to hold physical gold or other precious metals within a self-directed individual retirement account.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
