Gold purchase is not only considered opportune in India but it also serves as one of the finest investment options. While traditionally gold was exchanged or bought in a physical form and it still is, there are paper forms of gold too such as gold exchange-traded funds (Gold ETFs), Sovereign gold bonds (SGBs) issued by Reserve Bank of India and Gold Mutual Funds (Gold MFs).
However, every kind of investments has their own set of pros and cons.
Let’s understand the risks associated with gold investments in detail: Physical gold
One can buy physical gold in the form of jewellery, coins and bars. People may cherish possessing gold, in particular, jewellery, forgetting they pay for its making charges and GST.
“These making charges are irrecoverable on resale,” say experts. Likewise, gold coins and bars come with processing charges, which are again irrecoverable.
Additionally, there are other problems attached to handling physical gold such as storage or chances of theft, purity concerns, etc. Also, creditworthiness of the seller is a concern here.
Gold mutual funds Gold Mutual Funds are moderately risky investment options, say experts.
“Investments in gold mutual funds are backed by real time gold prices which are influenced by current market scenarios. Hence, these mutual fund schemes may or may not give favorable returns at some point of time,” according to Paisabazaar.
Sovereign Gold Bonds (SGBs) Investments in SGB can result in a capital loss as the bond value is directly linked to the price of gold in the international markets. If the price at which investors bought the bond is higher than the price at which they redeem it at maturity, they might end up in a loss, according to experts. Gold Exchange Traded Funds (ETFs) Gold ETFs have inclusion of management fees, which can make it more expensive than physical gold. Also, there are market risks attached to it.
They can be redeemed only in terms of cash and not gold as they are gold contracts and derivatives.
Despite these, experts advise people to invest in gold because of its valuable nature. The yellow metal acts as a hedge against inflation and is capable of providing financial cover during macroeconomic uncertainty.
Disclaimer: CNBCTV18.com advises users to check with certified experts before taking any investment decisions.