Should You Be Buying Gold This Dussehra?

Hence, the day of Dussehra is also known as Vijayadashmi to commemorate the triumph of good over evil. This festival is worshipped for wealth, knowledge and devotion; the three deities of wealth (Mahalakshmi), Shakti (Mahakali), and knowledge (Mahasaraswati) are adored on Dussehra.

Dussehra signifies the beginning of good times; many individuals prefer to start a new venture, buy a high-value asset, and purchase gold on this day. It is believed that a new investment on this day will usher in good fortunes and welcome Goddess Lakshmi. As a symbol of good health, peace, wealth, and prosperity, the leaves of the Bauhinia Racemosa - a medicinal tree also known as the Apta Tree, are exchanged among family, friends, and neighbours as part of the Dussehra celebration.

As per Hindu mythology, Kautsa, the young son of Brahmin Devdatt, wanted to offer Guru Dakshina to his teacher. The Guru sage Varatantu, on persistent requests of his student to accept Guru Dakshina, asked for 14 crore gold coins in an attempt to send away Kautsa. Worried, Kautsa went to Lord Rama for rescue; Lord Ram, with the help of Lord Kuber (the Lord of Wealth), converted millions of Apta tree leaves into gold on the day of Dussehra. Thus, this tradition of offering Apta leaves on Dussehra as a symbol of gold is followed even today in memory of this incident. For these reasons, Dusshera is considered to be an auspicious day to purchase gold.

Gold is considered one of the most valuable metals in the world, and it is now seen as a sound investment in addition to being a status symbol of wealth. The precious yellow metal gold is usually considered to be a safe haven, a hedge against inflation, and an effective portfolio diversifier amidst the spiralling inflation and ongoing macroeconomic and geopolitical uncertainty.

As a result of the Russia-Ukraine war, sharp rate hikes, and high inflation, warning signs of uncertainty in the near term are flashing in the global economy. According to the World Bank report, several indicators point to a possible worldwide recession in 2023. To combat spiralling inflation that has reached a multi-decade high, central banks throughout the globe have raised interest rates this year with a degree of coherence unseen over the past five decades.

However, gold as an asset class was not significantly impacted despite the uncertainties caused by geopolitical tensions, high inflation and the World Bank's prediction that the world economy would enter a recession in 2023, and a run of financial crises in emerging markets and developing economies.

The global economy is affected by rising geopolitical tensions and the macroeconomic environment's instability. It is compelling to own gold in your portfolio since it is looked up to as a store of value and hedge during uncertainties. Gold is a tangible asset as opposed to other financial assets. Therefore, neither credit risk nor counterparty risk exist with gold. Given the current headwinds, it makes sense to allocate strategically to gold in order to protect against the risk of near-term volatility and the onset of a global recession in 2023 as predicted by experts.

Many individuals still prefer buying physical gold but is it still a feasible investment option? With the age-old perk of having a tangible asset, also comes the burden of taxes, making charges, risks of owning, storing, security, impurity, etc. These costs are just so that you could feel secure by holding gold in the physical form, whilst paying charges more than its actual market value. There are several tactical avenues in gold wealth creation, smart investors around the globe are already engaging in these offerings from the market. For those who have not heard about them yet, here is a short guide which helps with all essential information on these attractive gold investment options.

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If you are considering buying gold on Dussehra, do it the contemporary way. Here are the smart ways to invest in gold:

1. Gold Mutual Funds

Gold mutual Funds come typically in two forms: a Gold Exchange Traded Fund and Gold Savings Fund. Like any other mutual fund scheme, they are professionally managed by a fund manager and his team at the fund house. Gold mutual funds is the most convenient way to invest in an asset without purchasing the commodity in physical form.

There are two categories of gold mutual funds:

• Gold Exchange-traded funds (Gold ETFs) - Gold ETFs aim to track the domestic price of physical gold; they are passively managed and make direct investments in Gold. To gain exposure to gold without having the hassle of physically holding it, a gold ETF is a worthwhile option.

  To invest in Gold ETFs, you need is a Demat Account and Trading Account, and the purchase order can be placed through your broker – just like the way you buy shares on the recognised stock exchange. When you buy a gold ETF unit/s, these will be reflected in your demat account (on a T+2 basis). Notably, investments in Gold ETFs cannot be made through a SIP route.

  The units purchased under Gold ETFs will be backed by 0.995 finesse of physical gold by the respective fund house. The physical gold is held in vaults by an appointed custodian for the ETF on your, the investors’ behalf, plus insured and valued periodically, as per the guidelines stipulated by the Securities and Exchange Board of India (SEBI). Each unit of gold in the Gold ETF, the investor, buys is equal to 1 gram of gold (some mutual fund houses also offer 1 unit at 0.5 gram of gold).

  To sell the Gold ETF units, you need to place the order with the broker who will then execute it on the stock exchange, and if the trade is executed successfully, the proceeds from it shall be received on a T+2 basis into your bank account, and the Gold ETF units move out from your demat account.

• Gold Savings Fund - A Gold Savings Fund is another investment option for risk-averse investors. It is an open-ended Fund of Fund scheme investing in underlying Gold ETFs, which benchmarks the performance against the prices of physical gold. Since this is a fund of fund scheme, a Demat account is not required, unlike Gold ETFs.

  The units of a gold savings fund will be purchased at the NAV declared by the mutual fund house, and the allotted units will reflect in your mutual fund account statement. A gold savings fund aims to generate parallel returns that closely correspond to the underlying Gold ETF. Gold savings funds allow you to invest disciplined manner through the SIP route with a sum of as little as Rs 500.

2. Sovereign Gold Bonds - These are gold bonds issued by the Reserve Bank of India (RBI) on behalf of the Government of India. In other words, SGBs are government securities denominated in grams of gold. The Indian government launched the Sovereign Gold Bond (SGB) Scheme in November 2015 to provide investors with a substitute for holding physical gold.

SGBs are considered a superior alternative to hold gold in physical form as it allows you to earn from the appreciation in the gold price while also paying you the fixed interest rate. The SGB eliminates the risk and cost of storage as it is a paper-based instrument. Issued in denominations of 1 gram of gold and multiples thereof, SGBs come with a tenor of 8 years (with an exit option at the end of the 5th year to be exercised on the interest payment date) and are tradable on the exchange. The investor is issued a Holding Certificate, and the bonds are eligible for conversion into Demat form; SGBs can also act as collateral for a loan.

3. Digital Gold - You can also invest in Digital Gold, which is in moderation to the traditional gold investment avenues. Several Digital wallets have tied up with MMTC-PAMP (a joint venture between state-run MMTC Ltd. and Swiss firm MKS PAMP) or Digital Gold India Private Limited (under the SafeGold brand), which are platforms that offer Digital Gold.

You can buy physical 24k gold (of 995 fineness) conveniently and securely online in compliance with all the rules and regulations. This option of investing in gold digitally is appealing to young investors, especially millennials, since it offers ease of access and investment in gold as an asset class at your fingertips. The minimum you can invest is as little as Re 1 (in certain cases), while there is no cap on the maximum amount, which is lighter on your wallet. Unlike purchasing expensive gold jewellery, digital gold offers an opportunity to invest in gold without a huge amount. The transaction is routed through your digital wallet on the go at the market rate.

Additionally, these digital wallets provide you with the SIP option in Gold Savings Funds and Gold ETFs if you want to buy gold on a regular basis in small amounts. There is no lock-in period; you can simply sell Digital Gold at any time for the quantity or grams you choose by placing a sell order.

There are options to redeem your investment in physical gold as well, but to take physical delivery of gold after conversion, keep in mind you are required to pay in cash for the accrued expenses, transportation cost, and GST (Goods and Services Tax) levied by the fund house.

To conclude...

Instead of purchasing gold physically and taking on the risk of storage and security, investing in gold wisely through gold mutual funds, SGBs, or digital gold offer the convenience of ease of transaction. Additionally, it provides more liquidity than physical gold when you wish to sell your investment, which is essential given the current market conditions.

Therefore, Gold as an asset class proves to be a wise investment option for investors, and it makes sense to invest in Gold during this festive season. You may consider allocating a portion of your investment portfolio to gold as an asset class, and it will prove to be a safety net amid volatile market conditions over a long period of time. While exchanging the 'Apta' leaves, which serve as a symbol of gold, on this Dussehra, you may also think about exchanging the notion of investing in physical gold with the above-mentioned smart gold investment options.

Gold should only account for a modest portion of your total assets. If the value of all of your other investments, like equities and bonds, crashes, the value of your gold should rise, preventing your portfolio from slumping. However, keep in mind that nothing is guaranteed, so proceed with caution while buying this valuable precious metal. It makes sense to strategically allocate around 20% of your entire investment portfolio to gold and stay invested for the long term.

Happy Dusshera to all!

Warm Regards,
Mitali Dhoke
Research Analyst