Amidst the grim pandemic-induced backdrop, a ray of positivity in the form of Akshaya Tritiya is here. This year, like last year, the festival will be celebrated differently as the country stays indoors and fights a pandemic. The gold buying tradition must be upheld. But before you go ahead and do that, let’s jot down some learnings from last year.
Lakhs of lives and livelihoods were lost to Covid-19 in 2020. In times of such health or financial emergencies, people tend to fall back on their savings. And that’s what most had to do last year.
Now, it’s well known that physical gold is a preferred saving instrument in India and one would assume that the gold coins, bars and jewelry saved up over the years turned out to be handy as people dealt with the pandemic’s fallout. Not really.
Instead, came to the fore another one of physical gold’s limitations – the inability of people to source or sell it when movement was restricted thanks to the pandemic-induced national lockdown. What is the use of an asset if it can’t be monetized when needed? Liquidity or how fast your investment can be converted into cash is an often overlooked attribute when choosing an investment vehicle. And turns out gold jewelry, coins and bars failed on this front during these times of crisis.
This limitation of course is in addition to the purity and price-related disadvantages that come along with physical gold. We all know of experiences or ourselves have had experiences when one was caught with impure physical gold/jewelry and thereby settled for a lower resale value. While gold jewelry and coins can be bought and used for aesthetic value or gifting, they are ineffective as an investment option. The making charges and premiums on gold jewelry and coins respectively, are significant and typically range between 5-25% over and above the gold prices. These are irrecoverable on sale, translating into a loss.
The inability of investors to invest in or liquidate physical gold due to the Covid-19 social restrictions though painful in the short term turned out to be a blessing in disguise. It seems like many were finally compelled to acknowledge the drawbacks of physical gold and give up their inefficient preference for holding it. They chose to optimize their gold holdings by switching to the more efficient Gold Exchange Traded Funds (ETFs) or Gold Saving Funds.
Gold ETFs let us sit in the safety and comfort of our home and enable us to buy and sell gold as and when we want. Gold ETFs invest in only 24-karats physical gold taking care of any purity concerns that investors may have. Moreover, Gold ETFs are traded on the exchange at the prevailing market price of physical gold, thus investors can buy or sell holdings at close to the market price, without paying the making charges.
Gold ETFs are better off than physical gold in terms of liquidity, purity and price efficiency. The ~6900 crores of inflows that Gold ETFs received in the financial year 2020-21 is proof of that.
Gold buying on Akshaya Tritiya is viewed as auspicious. The word “auspicious” translates to being or giving a sign of future success. It’s up to investors to decide which form of gold will truly be auspicious for their hard-earned money. One that is prone to impurities, illiquidity and price inefficiencies or one that isn’t. Choose well. Wishing you an auspicious Akshaya Tritiya!
(The writer is a Senior Fund Manager – Alternative Investments, Quantum Mutual Fund.)
Phillip Peters is an independent journalist, entrepreneur, digital marketer and press release publisher. He has a soft spot for technology, gadgets, cryptos and writing about health and politics. He also loves travelling the world! Phillip has been working with KukaUSA full time since September 2018.