Tradition is the glue that binds a society. It provides a sense of comfort and belonging. Indian tradition and culture are well-known and Indians as a society hold tradition in high stead. Buying gold on certain festivals is a tradition in the country and the volume is mind boggling, it drives gold prices around the world on those days. A tradition passed down through generations is the fixation with gold jewellery. Gold jewellery holds high socio-economic value for Indians. It is a symbol of wealth and power.
Many people don’t consider gold jewellery just an ornament but use it as an investment. The move is not as illogical as it seems. Gold is tangible and is considered a safe asset. In times of global turmoil, gold has been a symbol of stability. But is buying gold jewellery a sound investment decision? There are two aspects to the question. Is buying gold as an investment prudent? Suppose it is, then is buying gold in the form of jewellery a wise move? Let us see why buying gold jewellery is more of a misguided tradition than financial wisdom.
If you are buying gold jewellery as an investment, it should be judged on the parameters of a good investment. Along with the returns, a good investment should provide adequate liquidity. Gold is considered a liquid asset by many but it pales in comparison to instruments like equity. Though gold is more liquid than other physical assets like real estate, just like a property, it has a high socio-economic value in India. Selling gold jewellery has an attached stigma to it. People who live in rural areas and small towns are forced to sell the gold jewellery in small neighborhood shops who lack modern testing apparatus and often try to give a lower value for the jewellery. If you plan to invest in gold, digital gold is a much better option than gold jewellery. Like stocks, digital gold can be sold in a click of the mouse. At Finserv MARKETS, you can buy digital gold in two simple steps.
When you buy gold jewellery, the jeweller adds making charges to the piece. Making charge is essentially the payment for the craftsmen who manufactured and designed the piece of jewellery. It roughly constitutes around 20-30 percent of the cost of a gold jewellery piece. When you want to sell a piece of jewellery, the buyer melts it to test its purity, which is known as breaking charge. You will always end up losing the making charge, which makes gold jewellery an inefficient investment. Moreover, jewellers are not very transparent with the calculation of making and breaking charges, often distorting gold prices. Digital gold should always be preferred over jewellery if the aim is to use gold as an investment. Finserv MARKETS displays gold price prominently on the portal, making the process of buying and selling extremely transparent.
Gold in physical form requires an extensive security apparatus, which raises the cost of the investment. Suppose, you buy a stock, you pay the prevailing share price with a minimal brokerage charge. In the case of gold jewellery, you have to keep bearing an additional expense for keeping it safe. Coupled with making and breaking charges, security costs make gold jewellery a highly inefficient investment. On the other hand, digital gold does not require expensive storage and is also backed by physical gold, making it secure.
No current income
An investor can generate returns from gold jewellery only through the appreciation in the price of the yellow metal. On the flipside, investments in mutual funds, ULIPs, real estate or stocks can provide a current income like rentals and dividend, which can add to the overall appreciation of the investment. Gold is also more likely to give returns in line with inflation or below inflation in the long term. If you consider the additional charges in case of gold jewellery, the returns are most likely to lag the inflation rate.
Investors today have a plethora of investment choices, which is also a reason for gold’s diminishing sheen. Gold jewellery has also fallen out of favour with the young buyer, who prefers to spend on lifestyle products. From an investment point of view, it makes no sense to buy gold jewellery. If gold has to be included in the investment portfolio, it should be in the form of digital gold. Digital gold can be bought in very small amounts and does not require hefty upfront investments.
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