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Gold in the 21st century: The enduring appeal of Gold in the mutual fund era

By Finserv MARKETS - Aug 2,2019
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Gold in the 21st century: The enduring appeal of Gold in the mutual fund era

With the rising awareness among Indians regarding different advanced form of investments, gold managed to be a player. Investors still prefer having some allocation made towards gold. What is it that makes it so appealing? Gold surely leads and contributes to your portfolio by reducing the overall risk. Although the gold returns were not so favorable in the last five years, but the prospects are brighter for this asset. The consumption of this asset, be it in the form of physical gold or digital, is phenomenal. The GST rates also remained firm at 3 percent as compared to what was expected – 18 per cent, primarily due to its popularity in India and the level of investments Indians make every year — be it a farmer in a rural area or a CEO of a well- established firm. Gold goes beyond income class as well. As gold also has religious and cultural significance, every household in the country will purchase it in some form. Weddings and religious festivals like Diwali, Dhanteras, and Akshaya Tritiya are biggest drivers of gold purchase in India; gold prices usually go up during these festivals. According to a survey by ICE 360°, gold possession is evenly spread across all income classes:

Gold in the 21st century: The enduring appeal of Gold in the mutual fund era
This clearly exemplifies that gold appeals to everyone, irrespective of one’s income and savings.

According to Gajendra Kothari, MD and CEO, Etica Wealth Advisors, ‘Any asset class that has under performed over a long period can be a good bet.’ Investors should definitely have a long-term plan. When equity is giving positive returns, gold might underperform but for a longer span of time, gold is bound to shine and this has been testified over these years. The graph below explains how purchase of gold every year during Akshaya Tritiya can have an impact on SIP returns:

Gold in the 21st century: The enduring appeal of Gold in the mutual fund era
SIPs have performed better in the medium term as the rupee cost averaging has an impact on the SIPs but ‘this gap narrows down over 10-15 years’.

The penetration of other forms of assets, like equities and mutual funds, has been low. This specifically applies for the rural households where there is certainly lack of awareness. The investment is mainly in physical assets like farms, bank deposits, and gold. The mutual fund industry is yet to pitch their products in the rural market of India. Gold also works as an insurance for the poor in India, specially during medical emergency and financial crisis as it is unlikely that this section of the population will have any kind of insurance or financial savings. Most importantly, you do not require a big amount to purchase gold.

When markets are uncertain or during any form of crisis, it is advantageous to have money in the form of gold. Gold surely serves some purpose in the modern era. It is still seen as an adornment, and the physical form also has aesthetic value.

A lot of us might not want to bear the hassle that comes with purchasing the asset in the physical form and gold is just not limited to buying ornaments in the 21sr century. The various methods of gold investment have paved way for millennials. They aren’t buying gold the same way as the previous generation did as their demands, expectations, and behavior are different. They aren’t keen in buying physical gold but are preferring alternatives including gold funds and gold exchange-traded funds (ETFs). However, buying physical gold will never go away and in order to capture the attention of this generation, firms have altered their strategies and you can see online jewellery stores opening up. Key players such as Titan and Malabar Gold have launched sub brands like as Mia and Starlet, respectively, to target young buyers. Youngsters also don’t give a lot of preference to festivals like Akshaya Tritiya, therefore changing the demographics.

Up to 20-25% of the world’s Gold is consumed in India in the form of jewellery, bars, coins, etc.’Gold is inseparable from traditions and customs in India and no matter how many lucrative options are emerging, gold will always make its way. Basic advantages definitely plays a key role in retaining the appeal and demand; hedge against inflation, highly liquid nature, and diversification.

If you are looking to purchase gold, considering buying digital gold from Finserv MARKETS. Digital gold comes with a host of benefits including an assurance on purity, no storage requirements and the ability to buy and sell anytime from the comfort of your home. Finserv MARKETS is a trusted name that gives you a hassle-free online purchase and sale process for digital gold, with minimum documentation involved.


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