Should You Choose Physical Gold or Digital Gold for Investment?
Gold has traditionally been a favourite investment option among Indians. Once upon a time, the only way to buy gold was to get it in its physical form, but as time has passed, better venues have emerged. Physically holding gold presents certain challenges, such as loss by theft, purity concerns, ornament making charges, storage and maintenance costs, among others. Digital Gold eliminates these issues. You can now purchase gold while sitting comfortably at home by investing in Digital Gold.
What exactly is Digital Gold?
As the name suggests, when you buy gold in digital form, it is added to your digital account, typically in your demat account. When you sell it, its current cost in money terms is handed over to you. There is no threat of the gold being stolen or even loss of gold in processing. There are certain variations to this simple digital transaction like getting full or part of the amount converted to physical gold on sale.
What are the common forms of digital gold available?
- Sovereign Gold Bonds (SGBs): These bonds are issued by the RBI and are therefore fully guaranteed by the Government of India. Investors are assured of the then market value of gold at the time of maturity along with getting semi-annual interest of 2.5% p.a while the bonds were held with you.
- Gold ETFs & Gold Mutual Funds: Investors can buy digital gold in the form of gold ETFs and gold mutual funds. They are backed by actual physical gold that is stored with a gold custodian bank, making them extremely safe to hold. These can be bought by lumpsum money or through monthly small amounts in form of SIP
From an investment perspective, digital gold is indeed emerging as a better and more viable alternative. However, physical gold will continue to be in demand due to its use extensively as ornaments, though from investment perspective it is a costly preposition.
Also, remember not to have more than 5–10% of your total financial investments in Gold at any time.
(Contributed By Yogesh Gola, Associate Financial Planner, Team Vikrant, Hum Fauji Initiatives)
How to Create Good Money Habits?
Addiction to anything is unhealthy – smoking, drinking, eating, even excessive exercising. Bad financial habits also would rank somewhere at the top in this infamous list. Fear and greed, excessive emotions attached to money management, impulsive behaviour and wanting to get rich quick generally are the primary causes of bad financial behaviour. Let’s see what we can do about correcting them.
Don’t Mix Emotions and Investments: We hear one-sided stories of people making it rich with direct stock investing, Futures and Options, Cryptocurrency trading, penny stocks etc and we try to emulate them without knowing the other part of the story or developing knowledge and expertise for it. On the other hand, tendency to be overly safe and investing only in bank FDs and post office schemes, without caring for their overall negative returns after counting in the inflation and taxes makes our money lose out hugely. Remain balanced, focus on your future financial goals, work out carefully how you need to invest for the long and short term and then don’t let emotions derail the cart. If required, approach a competent financial advisory company for help.
Invest Salary hikes and bonus wisely: Most people eagerly wait for the bonus and salary hikes to increase their expenses or buy white goods. Short term gratification is sacrificed at the altar of long term financial fulfilments. While some part of such largesse can be used to increase the lifestyle, the major part should go for your future goals – invest the bonus or increase your SIP by at least 10% on a yearly basis in your existing portfolio to see your future dreams come through more easily.
Resist Discount purchases: With shopping just a click away and huge online easily discounts available, to get lured into buying things which actually one doesn’t need but feels good buying is all too easy. Resist this temptation of buying that larger screen TV or changing the car when current one is perfectly fine or competing your neighbour on latest gadgets is a sure recipe for financial doom. Control your shopping desires and stick to the list of what you actually need.
Finally, it is your self-control, detailed planning and resisting emotional financial outbursts that will save the day and lead you to financial freedom. Remember, More money can never fix bad spending habits.
(Contributed By Nidhi Dogra, Associate Financial Planner, Team Arjun, Hum Fauji Initiatives)
Fix the Leaks in Your Portfolio
If you spot a leak in the plumbing systems in your home, even though it is small, it is important to fix it immediately lest it led to greater inconvenience later. The same applies to your investments where similar vigilance needs to be exercised. Look closely at your portfolio, and you may spot some leaks and gaps that you need to plug in. Given below are the three plugs to protect the leaks and gaps that may be hurting your portfolio.
Investing in tax-inefficient products: People often go with tax-inefficient investments like bank FDs and Govt investments which seem safe but offer low post-tax yields and result in negative real yields after accounting for inflation. Here debt mutual funds score – they could give you similar safety with no tax till you sell, and if you sell after 3 years, you could save 60-80% of the tax for you. Couples can minimize overall tax liability by dividing investments between the two but do take care in it to not invite the clubbing provision. Another way is to adjust the capital gains by setting them off against the losses from other investments.
Don’t miss out on the gains: The best time to invest comes during the correction phase in the stock markets and not when they are riding high. So, when the markets are down, unless you need the money, it is best to remain invested and even buy more to poise your portfolio to capture the upside. Also, dividends in mutual funds could prove to be the leak in your profits by continuous withdrawal from the market without caring about the market conditions.
Plug the gaps in liquidity: Keep your exposure to illiquid investments in check. A reasonable amount of liquidity should always be a part of your portfolio so that emergencies and unforeseen expenses do not force you to sell your profitable investments rather than riding them to better gains.
High-Cost Possibilities: While products will have their basic intrinsic cost, avoid high-cost investments like endowment insurance policies and Unit Linked Insurance Plans (ULIPs) which will drain out your portfolio without giving you any commensurate benefits.
(Contributed By Priya Goel, Associate Financial Planner, Team Sukhoi, Hum Fauji Initiatives)