Retail investors perspective
In today’s time due to wide internet reach and easy Demat account people are getting serious about investments. But most of them are still confused about their investment strategy. One such perplexity is an investment decision between physical gold and mutual fund. In India, people have a special attachment to physical gold. According to mint, India has imported 5,33,376 KG of gold between April and November 2019.
And even during the start of Covid when most of the economies were collapsing, all the mutual funds and most of the stock was at an all-time low but golds were at an all-time high. So for most retail investors and especially those who are not from financial background prefer to buy physical gold. An unsudden situation such as the 2008 crash,2001 market bubble burst, Covid 19 where people wealth were destroyed and have gone bankrupt. This led to uneasiness in the mind of people for the investment in securities and prefer to invest in safe commodities like gold.
When and where to invest?
Different people have different opinions about their reason for investment in gold or mutual fund. But the fundamental difference lies in capital requirement.
Why Mutual fund?
Till February of 2021, the price of 10 gram 24K gold has reached Rs 50,240. As we all can see there is a huge capital requirement if you want to buy bullion commodities like gold. So even if retail investors want to invest in gold mostly it is out of their budget. In such cases, the mutual fund will suit best for such investors. A mutual fund provides good diversification and hence helps to mitigate risks.
Although during unsudden market events you may have to face loss for the short term. If you have invested for the long term then mutual can turn out to b very rewarding. It is a highly liquid investment because you can redeem your investment amount and within 24 to 48 hrs you will get your invested capital. Capital requirement is less, can start with as little as 1000 Rs initial investment.
When to Invest in Gold?
Premium commodities like gold are useful during uncertain market environments. But can use it for hedging purposes. Because when all other securities prices drop then people prefer safe havens like gold. This lead to an increase in demand and prices begin to soar. So even if you had a loss in the market portfolio then commodities like gold can hedge your losses.
Nowadays if you don’t want to manage physical gold then there are other options such as Sovereign gold bonds. But they come with lock-in periods. These are similar to physical gold but you don’t have to worry about burglary, damage, or storage cost. Instead, you will earn annual returns that we don’t get in physical gold.
These are two different investment classes with their own purpose and style of returns. If you are investing for some purpose and planning like education fees, new home, or retirement plan then a mutual fund has a lot of plans to offer according to your plan. But in the case of gold, you don’t get that much flexibility. If you are looking for just some decent returns from the market and have good capital to invest with a long-term horizon then can go physical gold.