Gold investment for Diwali: what to consider?

Diwali, also known as the "festival of lights," is India's biggest holiday and is enjoyed all over the world. In general, Diwali lasts for five days. It starts with "Dhanteras," which is also called "Dhantrayodashi."

People usually buy gold on Dhanteras because it's a custom and they believe that doing so will bring them wealth and happiness. Some people think of getting gold as a long-term investment.

Indian Diwali investments are dominated by gold. Learn how to invest in gold beyond jewellery, and their risks, performance and factors to consider

This document covers

1. Types of Gold Investments
2. Factors to be considered while investing in Gold
3. Performance of Gold

1. Types of Gold Investments

Gold can be invested in multiple forms and some of them are as follows:

• Physical Gold like Jewellery, Coins, bars or gold savings scheme
• Sovereign Gold Bonds (SGB)
• Gold Exchange Traded Funds (ETF)
• Gold Funds
• Gold Derivatives
• Digital Gold

Above are some of the investments in Gold and check Gold Taxability and its Holding Limits for a detailed explanation on what you can hold and how the taxability on such.

2. Factors to be considered while investing in Gold

Below are the some of the factors that needs to be considered while investing in Gold.

1. Objective of Investment: The objective of the investment needs to be considered while planning for investment in gold. The investors needs to consider whether it is Short Term, Long Term or just to hold / hedge etc
2. Risk: Gold can be a relatively lower risk investment but the investors needs to check their risk appetite before buying gold. But gold has performed a consistent 12% ROI over last several years ending 2023. At the same time, the storage of physical gold could be challenging as it need to be protected from theft and fire accidents.
3. Impact of Tax: GST needs to be paid at the time of purchase of gold. Income Tax will come into picture at the time of selling the Gold.

   Refer Gold taxability and the holding limitsfor detailed explanation.

4. Cost of Investment: Whenever you are making investments in gold, there are costs associated with it. Whenever you are investing in physical gold, there will be making charges and further it needs to be stored in secured places like bank lockers, which cost an annual charge. If you are investing the same in Gold ETF or others, there is a platform fee etc. Hence cost of investment needs to be assessed before investing in gold.
5. Market Conditions: The price of the gold can be influenced by the various factors like demand and supply, inflation, exchange rates, Geo political factors, investor sentiments like Dhanteras, Akshaya Tritiya etc

3. Performance of Gold

• Generally Gold is considered as Safe investment but the price depends on various factors. When the markets are not in good situation, most people go for gold investment to hedge.
• During 2023, the gold prices are continually increasing. The increase in the price of gold can be due to both internal and external Factors
• Internal Factors are traditions like Gifting on the occasion of Diwali, Dhanteras, Weddings etc, Speculation in price rises etc
• Global economic conditions like GDP, inflation, demand and supply, interest rates, and geopolitical tensions like the war between Israel and Hamas or Russia and Ukraine, or China and Taiwan are all examples of external factors.

Before investing in gold, people should think about all of these things.

Not only is buying gold on Diwali a custom, it's also a good way to invest. People will think it's a good idea when prices are going up and the economy is unclear. When you buy gold around holidays like Diwali, do your study.