Time to choose mutual funds over gold jewellery this Diwali!

When it comes to grabbing a piece of the yellow metal, the trend is more prevalent among women than in men because for many women gold is synonymous with a sense of security, holds emotional value and in many cases is also a means of self expression.
The fascination with gold as an investment vehicle has its roots in India’s post-independence history and the impact it had on how older generations approach matters of financial security.
The fascination with gold as an investment vehicle has its roots in India’s post-independence history and the impact it had on how older generations approach matters of financial security.
Published on Oct 25, 2021 04:18 PM IST
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ByHT Brand Studio

When 32-year old Nitya Sharma was urged by her mother and mother-in-law to visit the family jeweller with them before Diwali, she politely turned down their request. Sharma, a banking professional in Kolkata knows the grind all too well but doesn’t think of it highly from the monetary point of view. “Ever since I have been married, my mother and my mother-in-law have been following this practice of tagging me along with them to the jewellery store before Diwali for buying gold. I did it for the three years after my nuptials out of a sense of obligation to traditions but now I have relinquished participating in the traditional gold shopping spree because financially it doesn’t appeal to me at all,” Sharma says.

Come Diwali and serpentine queues outside gold shops becomes a common sight. Gold is sacrosanct in any celebration or festival in India and more so for Diwali celebrations. According to the World Gold Council, India and China are by far the largest gold markets and in volume terms together account for over 50% of current gold demand.

The fascination with gold as an investment vehicle has its roots in India’s post-independence history and the impact it had on how older generations approach matters of financial security. Many of those who faced displacement and losses during that period can corroborate based on their experiences that gold can be a life-saving asset during exigencies because of the value it holds as an international currency.

When it comes to grabbing a piece of the yellow metal, the trend is more prevalent among women than in men because for many women gold is synonymous with a sense of security, holds emotional value and in many cases is also a means of self expression. Women’s perception of gold being an appropriate investment made a lot of sense until a few years ago given the absence of succession laws for women in India. Families would give gold jewellery to their daughters on their weddings because it would be a valuable financial resource for women during emergencies. Also, the majority of women did not have basic financial literacy or access to financial services and thus their gold jewellery was the only asset over which they had complete agency.

Aditya Birla Sun Life Mutual Fund has started a special initiative called For Her that focuses on financial inclusion of women and intends to provide them avenues for financial security.
Aditya Birla Sun Life Mutual Fund has started a special initiative called For Her that focuses on financial inclusion of women and intends to provide them avenues for financial security.

While there are undeniable benefits of having gold investments, hoarding on gold based on the aforementioned beliefs can stall your wealth creation in the long run. One of the major reasons why gold may not be a very effective investment option in the long run is because gold loses value on resale. The making charges which can go up to 25% of the cost of gold and the GST levied on gold jewellery cannot be recovered, obviously when you resell gold. Jewellers also reduce making charges and if the gold items have sustained any injury, then the value can depreciate further during the reselling process.

Sharma, who has managed to overcome the cultural and social pull of buying gold, narrates that the problem of storage and the liquidity concerns of gold assets also led her to choose other investment avenues. “As a working woman with a hectic schedule, I rarely get the chance to wear gold jewellery and most of them have been gathering dust in my locker for years. Storing gold is a headache especially if you travel often because the fear of theft is real. Also, what many people tend to overlook is the fact that gold is an idle asset – it does not help you earn any dividends, income or returns. You can only gain from gold when you sell it and that may not be the best option when you are in dire need of liquidity. Personally, I feel mutual funds are a much better option in this age for women from the point of view of investing. There are so many portals through which you can invest without having to engage a broker and more importantly you can educate yourself easily about mutual funds because of the plethora of information that is available on the internet,” she says.

Kaanan Ladha, CEO of Invest Aaj for Kal says, “In India, gold is considered a passive investment, which is kept as a resource for tough times. Avoiding gold investments completely is not a great idea but mutual funds can work as a better alternative. This is because with mutual funds you can easily maintain a diversified portfolio due to the vast variety of funds that you can choose from. Also, equity mutual funds provide significantly higher returns than gold in the long run, are highly liquid and you also have the option to save taxes by investing in equity linked savings schemes (ELSS) which are eligible for deductions under Section 80C of the Income Tax Act.”

Key takeaways

- While there are undeniable benefits of having gold investments, hoarding on gold can stall your wealth creation in the long run.

- You can only gain from gold when you sell it and that may not be the best option when you are in dire need of liquidity. MFs are best during such times.

-With mutual funds you can easily maintain a diversified portfolio due to the vast variety of funds that you can choose from.

- Equity mutual funds provide significantly higher returns than gold in the long run, are highly liquid and you also have the option to save taxes by investing in equity linked savings schemes (ELSS)

- Buy an insurance cover for your gold jewellery if you don’t have one already. A jewellery insurance cover secures the risk of damage or loss of jewellery due to theft, burglary, natural calamities or other extreme situations.

This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.

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Friday, December 03, 2021