Gold has highlighted an inverse correlation to equities. This means that the returns of gold have historically been high when the equity markets have seen a downturn.
Investment in gold could be either in physical forms such as jewellery, coins and bullions, among others or in the digital form, which includes sovereign gold bonds (SGBs), gold equity-traded funds (ETFs) and gold mutual funds, to list a few.
Sovereign Gold Bonds (SGBs): These are guaranteed by the government of India, which ensures a yearly interest rate of 2.5%. This amount is directly credited to the bank account of an investor.
Gold Exchange-Traded Funds (ETFs): On similar lines to shares, gold ETFs are traded on stock exchanges. These are units that represent physical gold in the paper of demat (dematerialised) form. Essentially, one gold ETF unit equals one gram of gold. A gold ETF offers the combined flexibility of stocks and the power of gold in a dematerialised format. An investor should have a demat account in order to invest in gold ETFs.
Gold Mutual Funds: These are mutual funds managed by various asset management companies (AMCs) or fund houses, which mostly invest in gold ETFs.
The effectiveness of gold ETFs tends to be influenced by fluctuations in the value of gold. These are open-ended investments based on gold exchange-traded fund units. Considering the underlying value is actual gold, its worth is directly proportional to the price.
Gold mutual funds can act as a safeguard to tide over any economic shocks. Ideally, investing about 10-20% of the money in gold mutual funds is a suitable strategy to broaden the investment portfolio as well as build protection against equity market fluctuations.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.