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Gold has again emerged victorious, but investors need to be selective in choosing the right instrument

As the global stock markets continue to ride the turmoil roller-coaster and fixed deposit returns bite dust amid falling interest rates, investment in gold seems to be the right choice for all investors. And why not, after all when the equity markets were melting last year, gold was silently surging to new highs justifying Indian women’s love for it for once at least.

From Rs.10,658.75 (per 10 gms) on January 1, 2008, gold prices have taken a giant leap and touched Rs.15,150.00 on April 1, 2009 – offering a phenomenal 42.13% return to its investors in just 15 months. Amar Singh, Head of Research, Angel Commodities confirms, “Gold buying in the last one year has not yielded any losses.” This is primarily because the base cost of bullion can never become lower than its cost of production unlike in equity market. Agrees Pratim Patnaik, AVP and Head Retail Business, Kotak Commodities, “Gold has always been an investment for retail public. The risk reward ratio in gold is highly favourable for the long term investors as the returns are expected to be skewed positively.”

However, while investing in gold, investors must keep a few things in mind like they must avoid investing in gold jewellery. It’s simply for the fact that such a move attracts VAT at a very high rate and thus investors’ return on investment falls sharply. To get a proper return on the yellow metal analysts suggest to invest in gold coins or bars, which are stamp duty and VAT free.

As fund houses are going gaga over Gold ETFs (Exchange Traded Funds) these days, investors can also evaluate their options to make some investments in these schemes. Investment in GETFs will make investors’ life a lot easier as while giving the benefits of investment in gold, GETFs relieve the investor from all hassles associated with physical possession of gold like, the storage cost, liquidity, purity et al.

As per Keyur Shah, Associate Director, World Gold Council, “Currently, gold is one of the best performing asset classes. It continues to remain the most accepted and time tested asset class for its proven ability to preserve value over time and act as an effective portfolio diversifier, which come to the forefront in times of economic downturn, making it extremely relevant in today’s time.” Going by his words, this is definitely the time when investors must give a serious thought about investing in gold; but at the same time they must invest in the right instrument.

Deepak Ranjan Patra

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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