World economies are being impacted by inflation. More than one-third of the global economy will contract, according to the International Monetary Fund (IMF). The Indian economy is strong, but the fight against inflation is far from over. It is crucial for investors to place their money in asset classes that have the potential to generate returns that are greater than the rate of inflation. Gold is one of these asset classes. Let’s go over it in more depth.
Gold is considered a smart way to fight against inflation because it tends to hold its value and preserves your purchasing power over the long haul, despite fluctuations even in the currency. New year is a good time to increase allocations to gold.
Empirically, over a longer period of time, it has been proved that gold has been a good hedge against inflation. The stock market slows down as well, and real estate assets may even lose value when the economy enters a recession. In this situation, buying gold might be a smart move to diversify your holdings, lessen your exposure to these risky investments, and lessen the severity of any losses.
Investors must have a demat account in order to invest in gold exchange traded funds (ETFs), but not in gold mutual funds. An option to invest through a SIP is provided by gold mutual funds, making the investment more manageable and cheap. Gold ETF prices are immediately impacted by changes in gold prices, however Gold MF prices are not directly impacted. Solid gold investments, such as gold coins or bars, come with a danger of theft and storage issues.
Solid gold investments are best suited to investors with traditional investment preferences. They could take into account the gold strategies that reputable jewellers are offering. According to this plan, an investor must make a set number of SIP-like investments into the gold scheme over a specified period of time. An investor receives a lump sum payment at maturity, which they can use to buy jewellery with particular perks like no manufacturing costs, waste, etc.
However, investors should only choose a gold plan choice from well-known jewellers that have an excellent track record. Prior to investing in such schemes, default risk likelihood should be considered. Under the direction of the Reserve Bank of India, the Indian government created sovereign gold bonds in 2015. The goal is to provide a different way to invest in solid gold. It typically has a five-year lock-in period.
As a result, even while gold is a wise investment for certain people, it might not be the best asset for everyone. Gold is generally not for those investors if getting the most gain possible out of their investments is a top objective. Though it doesn’t normally offer big returns, gold is regarded as a low-risk, safe haven investment.
The author teaches accounting and finance at IIM Tiruchirappalli.
source from: msn.com
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