Why women need to break free from traditional investment class like gold?
Devika Kochchar (name changed) wears a crestfallen expression as she stares at the pile of jewellery lying on her bed. 28-year-old Kochchar, an investment banker based in London had returned to India two months ago for her wedding. She is set to tie the knot with her childhood sweetheart who is also based in London.
“My parents are obsessed with gold. My mother insists that I should be decked heavily in gold on my wedding day. It is common for Indian families to be obsessed with weddings and gold jewellery has an important place in that. My parents are no different but I do not conform to their perspectives. I believe that in this age hoarding gold is a thoroughly wasteful exercise,” rues Kochchar.
Be it the penchant for using weddings as a platform to showcase wealth or the innate trust in gold as a safe haven, Indians and especially women, spend a colossal amount of money on gold. Gold is considered auspicious in many cultures and wearing gold and gifting gold ornaments is considered an indispensible constituent for important ceremonies and festivals. 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 and in India weddings generate approximately 50 percent of annual gold demand.
Despite the gold consumption pattern indicating the popularity of gold among Indians, gone are the days when making large investments in gold for creating a financial safety net for women made sense. “My parents have bought a voluminous amount of jewellery but I don’t think I will ever wear or use any of them – at the most I will probably adorn a few pieces once or twice a year but that’s it. Storing them safely would be another problem that I will have to deal with once I move back to London. I would have preferred if my parents had bought less gold for my wedding and had given me the rest of the capital that they had saved for buying gold because I could have invested it in avenues that are suitable for me,” Kochchar narrates.
The senseless pursuit of gold as an investment is somewhat intertwined with India’s post-independence history and the impact it had on how older generations perceived wealth and financial security. Many of those who faced displacement and losses during that period would have experienced first-hand that gold can be a huge blessing because of the value it holds as an international currency making it the most reliable asset during exigencies.
Secondly, until a few years ago, there was a valid argument in favour of families giving a hoard of gold jewellery to their daughters on their weddings because in the absence of succession laws the gold jewellery could double up as a valuable financial resource for women during emergencies. Also, 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.
The scenario is very different now. While women still have a long way to go in terms of being in complete control over their finances without the involvement of any male members, there is a myriad investment options available to them which offer numerous advantages compared to gold. Kochchar explains, “Gold is an idle asset and it earns nothing – no dividend, no interest, no income. You can only reap returns once you sell it. Moreover, jewelers deduct steep making charges when women try to sell their jewellery and depending on the rates, it can erode the value of jewellery in the selling process. And if the pieces have sustained any damages, the value can reduce even more,” says Kochchar.
Talking about the need for women to move away from traditional gold investments, Kochchar elaborates that mutual fund investments are a better option. “I have been investing in mutual funds since I was a college student. You can start investing with as little as ₹500 and there are funds for all kinds of risk profiles and timelines that can be put to use for varied purposes such as tax planning, buying a car or retirement. As a working woman on the go, the freedom to withdraw my investments as and when I need or tweaking my asset allocation is something I really value. That is definitely not the case with gold given the unique challenges of storage and the emotional value that could be attached to some jewellery pieces which can make selling a tough decision,” Kochchar shares.
The digitization of financial services in India has also made it easier for people to invest in a variety of asset classes. All you need now is a bank account, a smartphone with internet connectivity and you can start investing. This can encourage more women to start investing actively because they do not need to actually get in touch with individual brokers or mutual fund distributors for buying investment products.
Ananth Ladha, the founder of Invest Aaj for Kal advises, “In the world of investments, putting all your eggs in a single basket is a cardinal sin. In India, gold continues to be a major component in the portfolio of majority of women and the time is ripe for them to start exploring other investment modes, especially mutual funds. It is very convenient especially for women who do not have their own incomes as you only need a nominal amount to start investing. Also, a little bit of awareness creation can go a long way in making women adopt mutual funds because it is a matter of getting used to and knowing how the investments work and planning accordingly.”
• If you are a novice in the arena of investments, speak to a financial advisor who can recommend the right funds based on your goals and risk-taking abilities.
• In India, gold continues to be a major component in the portfolio of majority of women and the time is ripe for them to start exploring other investment modes, especially mutual funds. It is very convenient especially for women who do not have their own incomes as you only need a nominal amount to start investing.
• Whether it is a family heirloom piece or a pair of earrings that you gifted yourself, it is prudent to have an insurance cover for your gold jewellery. A jewellery insurance cover secures the risk of damage or loss of jewellery due to theft, burglary, natural calamities or other extreme situations.
Disclaimer: This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.