While we are in the midst of the festive season and everything is cheery, I’ll start this piece with a not-so-happy statistic. As per data from CMIE’s Consumer Pyramids Household Survey, only 5.4% of urban Indian women are employed as of February 2021.
If you’re reading this, chances are you earn your own money and are part of that tiny lot. But I won’t rush to commend you for that. That’s because, due to India’s predominantly patriarchal nature, a majority of working women still keep their distance from money matters like budgeting and investing and end up giving their salaries to the men in the house to manage.
And so before I can laud you for how far you have come in a society where women are not necessarily encouraged to have a career, I urge you to think and assess. Is it sufficient for a woman to work and earn? Or does true financial independence mean more than that? To be able to make your own financial decisions and be in control of your hard-earned money?
How difficult can it really be? You’re educated, you excel at your job, and you are capable of making your own choices. Especially; with bucket loads of information available to you on the web and easy access to digital banking and financial services.
Don’t get intimidated by the multitude of investment avenues out there. Let’s start small. With Diwali and its gold buying tradition here, and given that Indian women are known for their preference for gold both as wearable as well as a savings instrument, let’s begin by educating ourselves about the investment rationale of this auspicious asset class and the best way to invest in it.
While equities generate growth and debt brings regular income, gold, because of its lower correlation to the other two, generally moves in an opposite direction, providing diversification and improving the portfolio’s risk-adjusted returns. We saw this play out as recently as last year in March when stock markets tumbled and gold climbed to new highs, cushioning the impact of the market crash on investment portfolios of those holding gold.
At the peak of the pandemic last year, savings in gold proved to be a ready source of liquidity for many seeking funds for medical or income setbacks. Gold’s liquidity does not dry up, even at times of financial stress, making it a handy and much less volatile asset to own in today’s unpredictable world.
While the Covid era ultra-accommodative monetary and fiscal stimulus measures have helped bring back consumer demand, they have also stirred up higher inflation. Look at the price of petrol today. It has crossed Rs 100 per litre! Gold prices have historically kept pace with inflation, which can help investors tackle the impact of price rises on their finances.
Moving on to the various avenues to invest in gold.
When investing in gold, investors shouldn’t underestimate the importance of the instrument used to take exposure, as it could make all the difference. First things first, buying gold jewellery isn’t the same as investing in gold. That’s because physical gold is often marred with impurities and price inefficiencies through markups, making charges, etc., which eat into your returns.
Investing in gold is thus best done through financial forms. Digital gold, Sovereign Gold Bonds and Gold ETFs are financial ways to invest in gold. White digital gold offerings meet the purity and liquidity criteria; they fall short on regulation and price efficiency due to high bid-ask spreads. Sovereign Gold bonds pay annual interest and are tax-efficient, but they suffer from low secondary market liquidity resulting in price inefficiencies. Gold ETFs are backed by 24-carat physical gold and let investors invest in gold at low denominations without worrying about gold’s purity or storage. These regulated instruments are traded on the exchange at the prevailing market price of physical gold with no making charges or premiums. Mutual fund investors can invest in a Gold ETF via a Gold Savings fund.
While there is no doubt that the tradition of buying gold on Diwali is a great investment and financial practice, this Diwali can also be an opportunity to optimise that tradition. Learn to differentiate between gold jewellery bought for usage and gold investments. Choose efficient, financial avenues for investing and begin to play a larger, more informed role in financial decision-making.
Remember, dear reader, if you can earn your own money, you sure as well can manage it. Happy Diwali!
(The author is Associate Fund Manager – Alternative Investments, Quantum Mutual Fund.)
