Saving through gold has been a quiet habit in Indian homes for as long as anyone can remember. People who follow todays gold rate often do so not to trade but to measure the steady growth of their family’s wealth. In the coastal metropolis of Tamil Nadu, the gold rate today Chennai residents see each morning shapes decisions about whether to add a little more to the household stash this month. A salaried family with a modest income can accumulate a meaningful holding through discipline alone. This article looks at practical ways ordinary households can use gold as a long-term savings tool without taking unnecessary risks.
1. Treat Gold as a Savings Habit
Many families save gold only when a wedding or festival nears. Instead, think of gold as a recurring deposit and begin to build your gold corpus today. You can decide on a monthly instalment, which gets converted to gold, and over a period of time, you will find your savings accumulating into an impressive collection.
It is important to note that by adopting this approach, you remove the anxiety of buying at the right time. While there may be fluctuations in the price, you are buying at a price that would have been better than the market price on any given day. This works out because you can buy more grams when the price is low and less when it is high.
Choosing the Right Form
Now that the family has decided to build gold savings, the next step is figuring out what form. With so many options on offer, here is a quick guide on the pros and cons of each:
Physical gold: Easy to value and store; coins and small bars carry a low premium over the price of gold and pose no risk of being tampered with.
Jewellery: Can be worn and passed on as an heirloom but comes with high making charges and low resale value.
Exchange Traded Gold Funds: Convenient to buy and sell through a demat account, and there is no risk of purity or theft.
Sovereign Gold Bonds: Available in the secondary market, these bonds come with an added advantage of accrued interest if held till maturity.
Digital gold: Great for making small and frequent purchases through a trusted payment gateway; make sure to check the terms and conditions before linking the wallet to the payment method and any additional charges while converting the digital gold to physical gold.
Matching Gold to Goals
Not all gold are the same. While some may be meant for a daughter’s wedding, others may be to create an emergency corpus. Understanding how the money will be utilised is important to decide the form. If it is a long term goal, you can invest in gold bonds, exchange traded funds or jewellery that can be passed on as heirloom. If the goal is to create a corpus, it may be better to invest in coins or exchange traded funds that can be liquidated at short notice.
Defining the goal helps in deciding the tenure before the gold can be sold. It also helps to avoid the temptation of using the gold savings for other purposes.
Balancing Gold in Budget
Many financial advisers while suggesting gold as part of the financial plan, recommend a small proportion of the overall savings in the form of gold. Gold as a diversified asset class helps protect the wealth but does not contribute to regular income as there are no dividends. Remember to balance gold with other assets like equity mutual funds and fixed deposits, apart from an emergency fund.
Review this allocation once a year to make sure it fits your needs and goals.
Avoiding Common Mistakes
Families often tend to buy gold during festivals as it is a social norm, but it may not be a great time to buy if the price is high. Avoid getting tempted by attractive jewellery and paying extra for making charges, especially if it is to be liquidated later. Keep your gold savings in a secure place and get an appropriate insurance to cover any unforeseen events. Beware of fraud and never invest in a scheme that promises unrealistic returns. Always ask for a bill while buying gold and get jewellry hallmarked to ensure quality. Maintain a log of all transactions, especially of the jewellry to help while calculating the value during resale or while dividing among heirs.
Gold Savings as Legacy
Gold savings can create a legacy for your children and grandchildren, as it is a secure way of passing on wealth. By avoiding the common mistakes and adhering to a few simple disciplines you can ensure that your gold corpus grows to be a meaningful addition to your retirement corpus or even fund your childrens’ education. But then, who said that gold purchases need to be a big-ticket item or made at one go?
