How to Perfectly Fit Gold in Your Investment Portfolio?

Gold is one of the most popular investment tools in India. This precious metal is highly liquid and appreciates in value with time. It can be held in dematerialized and physical form. Gold helps to hedge your investment portfolio against market ups and downs. Yet many investors are unaware of the long-term benefits of this yellow metal. Though gold provides slow returns, it is a safe-haven in a turbulent market.

To understand why gold is a suitable pick for your investment portfolio, below; we have reasoned how this precious metal can contribute to your investment plans.

Why to Include Gold in Your Investment Portfolio?

Below-mentioned are some of the reasons as to why gold must be a part of your investment portfolio.

  • The yellow metal diversifies your investment portfolio.
  • It safeguards the portfolio from the financial effects of a geopolitical crisis.
  • You can take a gold loan against physical gold jewelleries or bank-purchased coins during financial emergencies.
  • It hedges against domestic inflation.

How to Fit Gold in an Investment Plan?

There are various ways you can fit yellow metal in your investment plan. Today we will discuss the gold investment options wherein you do not have to own the asset in its physical form.


  • Gold ETFs


As an investor, you need to have a trading account and a Demat account with a share broker, to invest in this avenue. Gold ETFs are affected with any change in the gold prices. These are open-ended funds, which keep a track of gold prices. The stock market changes do not affect its number. Gold ETFs are traded and listed on a stock exchange. Thus, these can be purchased and sold in real-time basis.

If you are investing in Gold ETFs for the first time, then understand that this investment option includes brokerage charges and asset management. However, there will be no entry and exit cost. You can purchase these through SIP or in a lump sum.

As a tip, we suggest that this investment avenue should not be a priority for slow or novice investors. But if you are an expert in intra-day trading and enjoy it, you can definitely invest in Gold ETFs.


  • Gold Funds/Mutual Funds


Gold funds or mutual funds are also known as ‘gold funds-of-funds’, and invest in gold ETFs. The investment is done in gold bullion or stocks of gold mining, manufacturing, or producing companies. The gold share price in a fund depends on the spot price of this precious metal. You do not need a Demat account to trade in gold mutual funds, unlike that for gold ETF. But like the gold ETFs, it is possible to invest in the fund through SIP (Systematic Investment Plan) or a lump-sum purchase.

The Net Asset Value (NAV) of gold mutual funds depends on the value of physical gold of companies’ share price. These would be the companies that are a part of the fund. It is easy to redeem gold funds. You can sell the fund units in the market hours anytime. Remember than NAV of the previous day should be taken in account when redeeming the gold fund units.

If you are new at investments or an investor who has a regular or stable income, then you can invest in gold through SIP. Systematic Investment Plan helps to bring discipline in investment, which is crucial to reap best returns on Gold Mutual Funds/Funds.


  • Digital Gold


Digital gold is a fairly new concept in India. It is a convenient and easy way to invest in 24-carat physical gold. You can buy, sell, and store pure gold in fractions whenever you want. The buying and selling of this precious metal happens on live market-linked websites. Any amount of gold you buy on an online platform is centrally stored in physical gold format in a secured vault.

There are no issues of storage or charges for the same. Whenever you need these gold coins, you can have it securely delivered to you.


  • Gold Sovereign Bond (SGBs)


Gold Sovereign Bonds are government-allowed bonds that are released every two to three months. Thus, SGBs are not available through the year. The government allows an open purchase of primary issues, the window for which remains open for a week. There are no entry costs to SGBs, making this investment option cost-effective than physical gold.

As an investor, if you want to purchase these bonds between two primary issues, then you must purchase the earlier issue listed in the secondary market on the market value. SGBs are suitable for long-term financial goals, as these mature after 8 years.

You can however withdraw prematurely 5 years from the date of issue on the interest payment dates. The returns depend on the gold rates at the time of maturity. The price and liquidity also will be at risk if you exit the market early.

How Much Should You Invest in Gold?

If you are new to investments, you may want to invest in paper gold such as gold mutual funds, gold ETFs, SGBs, instead of physical form of gold such as jewellery. This is suggested because physical gold comes with making charges during purchase. However, this expense is never recovered when you sell the precious metal.

Physical gold also entails other hassles such as liquidity, security, and storage. You will have to bear additional charges for its storage, if securing it in a bank locker. If you draw a stable and regular income, you can ideally invest 2% to 6% of gold in your investment portfolio. If you have an irregular income, then do not invest more than 10% gold in your investment portfolio.

So when investing in dematerialized gold, you must consider the above-mentioned investment tips and proceed with your gold investment plan.