India’s fascination for gold – the precious metal – is always on an upward trend. Read on for some great tips for investing in gold, including why buy gold, when to buy, and how much to buy.

Gold has always been considered a time-tested asset class, for both cultural reasons as well as investment purposes. Also in India, for mass consumers, it is more about long term “savings” in gold as compared to “investment or profit booking”.

Considered the best friend of Indian investors, especially women, gold can be considered both a short term as well as a long term investment option.

If you’ve been planning to invest or save in gold and wondering if it is a good option, this article will help you. 

When should I invest or save in gold?

One of the best tips for investing in gold revolves around the timing of purchase. The best time to invest in gold is when inflation is expected to rise, pulling down the value of local currency.

For a practical investor, it just might make sense to adopt the “buy, hold, and wait” strategy.  Buy when the gold prices are low, irrespective of economic conditions.

Gold has displayed a steady growth over the last two decades. Buying gold regularly gives you the best average pricing, which is what all smart investors should do.

Pros of gold as an investment

Any tips for investing in gold should naturally include the pros and cons of doing so. So, here are the pros of gold as an investment.

Value retention: Even if the price of gold decreases temporarily, the underlying value of gold does not change much. This is because there is a finite quantity of gold available in the world, as it is a commodity.

Use of gold for other products: Gold is used in the production of various products like jewelry and electronic items. This ensures that there is a constant demand that further stabilizes the price of gold. When the demand for these products increases, the price of gold rises.

Diversification: Adding different securities to your portfolio is a great way to diversify and lower the overall risk of your investments. Gold is a great addition to your basket of investments and provides a cushion when other asset classes fall.

Easy conversion: Gold can be easily converted into cash anywhere in the world. It thus stands as a very liquid option, especially when bought in the e-gold form.

Cons of gold as an investment

Physical storage: If you choose to buy physical gold, you will need to store it and insure it. However, you can buy e-gold in a very convenient way.

No passive income: Other investments such as stocks and bonds may give passive income in the form of interest and dividends. However, the only return you can make on gold is when the value increases, and you decide to sell. The only exception is if you invest in gold through Sovereign Gold Bonds.

The gold bubble: During economic turmoil, many people start investing in gold, but when investors start to panic, gold can become overpriced. When price correction takes place, you could lose money.

What percentage of my portfolio should be invested in gold?

This really depends on your risk appetite. There is no hard and fast rule that you can follow. You should employ the same portfolio-management strategies for allocating money to purchase gold as for purchasing other investments.

Most analysts advise a 5-10% allocation to gold since one more important attribute of gold as an asset class is that it helps preserve wealth of your overall portfolio.

It may be tempting to buy a lot of gold in a struggling economy. However, have a balanced investment strategy and do not overdo any purchase. Investment in any form always carries some uncertainty. However, one can always take a well-informed decision and try not to get carried away.

If you are looking to start investing in gold, we will help you with that here. Use promocode HMT001 to avail a special discount of 1% on all buy and redemption transactions*, available exclusively for HerMoneyTalks members.