Has Dhanteras day gold buying given good returns? Check this before investing during festive season So, should you be worried about a further fall in prices or take advantage of the current reduced prices?
Purchasing gold on the day Dhanteras falls is a widely followed ritual in a good number of Indian households. As we approach Dhanteras, many would be preparing to make such purchases this year as well. Have you ever calculated whether buying gold on Dhanteras has given you high returns when done over the short, medium and long term?An objective assessment suggests that the yellow metal has done well in the long run when the purchase is made on this auspicious day. “The yellow metal has performed very well in the last 20 years. Gold is 13 times higher from 1990 and 10 times higher from 1990 and 10 times higher from 2000. Thus, a long horizon gives fantastic results,” says Surendra Mehta, secretary at the India Bullion and Jewellers Association (IBJA).
Had you invested in gold on Dhanteras 5 years ago, your absolute return would have been 70% as on October 14, at a CAGR of 11.2%. The CAGR for 15-year and 25-year periods are 10.9% and 10.4%, respectively. The only period for which the long-term CAGR is a bit muted is 10 years, at around 5%.
Dhanteras offers good way to diversify your investment portfolio
If your investment gives a return that is lower than inflation, then your investment is losing its value in real terms as things are getting costlier at a faster pace than the growth of your investment. Gold is known to work well against inflation. "The metal is a good hedge against inflation. Its returns are inversely related to real interest rates and a scenario of global negative real interest rates augurs very well for gold," says Vinit Pagaria- Head of Research, StockEdge.
Depending only on equities or debt may not be the ideal way to deal with financial investment as market cycles can often bring higher volatility in these financial assets and skew your returns adversely. Adding gold brings some balance and more stability to the financial portfolio.
“A good investment portfolio is diversified and is designed to maximise returns and minimise risks. Gold works as a great hedge against inflation, geopolitical risks and market crashes. Rising inflation and currency volatilities generally result in a rise in gold prices. Given its low correlation to most other investment instruments, it is beneficial to have gold in your portfolio for the long term,” says Dilip Jain, Co-founder, Gullak, a financial services platform.
Buying gold on Dhanteras may indirectly help you diversify your investment. "It acts as a hedge against market volatility and economic downturns. We can expect some volatility in financial markets and, hence, this Dhanteras could be the right time to add some gold to one’s portfolio," says Pagaria.
Should you be worried by recent fall in prices
Gold prices have seen a significant correction from the peak seen in March this year and recovered somewhat since then. So, should you be worried about a further fall in prices or take advantage of the current reduced prices? "Gold prices are not insulated from volatility and corrections. Therefore, rather than timing the investment, it is advisable to keep investing in gold in smaller amounts from a long-term perspective," says Jain.
Dilip Jain, Co-founder, financial services platform Gullak, says: "Gold prices have fallen 3.5% in the last two months, from its peak of Rs 55,000 seen in March 2022, to around Rs 51,000 this week. Investors can take advantage of the lower price ahead of the festive season. Having gold as an asset class is a good hedge against long-term inflation." While a correction in prices cannot be ruled out, the metal is highly unlikely to come down significantly by 15% or thereabouts. If you are investing in a staggered manager for a long term, then use a correction as a buying opportunity to average the purchase.
Year-end prices of 10-gram gold, Source: Gullak
Should you go for a bulk of staggered investment?
Bulk investment has done well over a long period, with an absolute return of more than 10% over 25 years. However, to do a bulk investment in gold, you need a big amount. Not everyone is comfortable doing that and waiting for long-term return. For them, staggered investment works well.
Had you done a systematic investment in gold every year, you would have been sitting with a decent return on the purchases. "If one had purchased gold (Gold ETF) worth Rs 1 lakh every year for the past 5 years, the value of that Rs 5 lakh would be around Rs 6.62 lakh now (IRR of ~9.5%)," says Pagaria.
The tradition of buying gold each year on Dhanteras in small quantities may be a good way to make a staggered investment in the yellow metal. “Buying gold every Dhanteras is not only auspicious but also a kind of SIP for investors,” says Mehta. While the prices fluctuate every year, buying some quantity each year helps you to average your price. “Gold purchase should always be staggered and not in bulk to take advantage of average pricing,” adds Mehta.
Jain also agrees, "Staggered purchases allow you to systemically invest small amounts, helping you build a habit of investing. You can invest in digital gold with as low as Rs 10. Small daily or monthly investments over the long term also allow you to invest across market cycles, helping you average out the costs.”
Digital gold a new choice
Apart from buying physical gold you have many option to invest digitally. "Purchasing physical gold and other items is popular ahead of the festive time. If you plan to invest in gold ahead of Diwali and Dhanteras, you may opt to invest in gold digitally. You may choose Sovereign Gold Bonds (SGBs), Gold ETFs for market-linked returns or Gold Mutual Funds," says By Adhil Shetty, CEO, Bankbazaar.com.
SGB has an added advantage. "Besides appreciation, SGBs also offer annual interest to investors. Investors can earn a fixed rate of 2.50 per cent per annum, semi-annually, on the nominal value. Also, you can take loans using these Bonds as collateral," says By Adhil Shetty, CEO, Bankbazaar.com.
How much gold is enough?
Most experts advise people to have around 10% of their portfolio in gold. But it can go up or down based on the global macro trends and the performance of other investment classes. "As gold is used as a hedge and diversifier, it is recommended to have at least 10%-20% allocation in the current global situation," says Pagaria. While the exposure to gold now can be higher, you should bring down the exposure to a long-term average of 10% of the portfolio when the turmoil eases.
This story originally appeared on: India Times - Author:Faqs of Insurances
