Throughout history, civilisations have been fascinated by the precious yellow metal: Gold. In every historical period, possession of gold remained a key indicator of a person’s economic status. But the nature of investments in gold has undergone a sea change in the present era. Especially in the last two decades, the advent of technology and rapid globalisation has brought about significant changes in investor behaviour and expectations. Millennial investors, born between 1980 and 2000, have a different approach, when it comes to taking investment decisions, be it stocks, securities, real estate or gold.
Gold consumption in India:
Globally, India is among the biggest consumers of gold. The liberalisation of the economy post-1990s coupled with the rise in purchasing power resulted in an increased demand of the precious metal. According to reports of the World Gold Council (WGC), out of every six ounces of gold being purchased globally, Indian consumers account for more than one portion. Wedding purchases account for around 50% of the total consumer spending of gold, and gold jewellery is preferred as a safe and secure mode of investment, largely in rural areas.
Millennials and gold investments:
Over the years, millennials have invested in various forms of gold, including physical and paperless gold. While paperless gold, like gold-backed Exchange-traded Funds (ETFs), have become popular modes of gold investments, there is a marked decline in the number of millennials opting for investment in physical gold. Read on to know more about the different forms of investment in gold, preferred by millennials:
This is not a preferred mode of investment in gold for millennials, primarily because of high-cost ‘making charges’, risks involved in safekeeping and zero market-linked returns. Jewellery is purchased for marriage and ritual purposes, rather than being a mode of investment.
Gold coin scheme:
Millennials have shown interest in these government-backed gold investment schemes, which offer gold coins of 5 grams and 10 grams along with gold bars of 20 grams. These coins and bars are hallmarked as per BIS standards, and are of 24K purity and fineness of 999. Metals and Minerals Trading Corporation of India (MMTC) conducts sale of these coins and bars through various outlets and designated branches. These also come with a buy back policy, without any hidden charges.
Gold-backed Exchange-traded Funds (Gold ETFs):
The price of gold ETFs are determined by the Net Asset Value (NAV) of physical gold, and thus provide for a transparent benchmark. Millennial investors have shown a marked preference for trading in gold ETFs at stock exchanges. It is easy to trade in ETFs, once you open a Demat Account. You can even invest a fixed amount in ETFs on a regular basis by starting a Systematic Investment Plan (SIP). According to industry experts, you should consider the tracking error, which is the difference between returns of gold ETFs vis-à-vis returns from physical gold before making investments.
Sovereign Gold Bond (SGB):
These are another form of investment in paper gold, preferred by millennial investors. The government opens the window for sale of SGBs, once in every two-three months. You can also purchase earlier issued SGBs – any time you want – at market value listed in the secondary market. SGBs have a fixed lock-in period of 5 years, along with a maturity period of 8 years. These also provide an additional interest rate of 2.5% on an annual basis. Though the interest component on SGBs is subject to taxation, long-term capital gains from these bonds are tax-free.
Why do millennials prefer investment in gold?
Market experts have underlined the importance of gold investment in diversification of portfolios. Gold investments can also beat inflation. Alongside, gold also remains a safe investment alternative in the face of any macroeconomic uncertainty or geo-political turbulence. This is clearly seen in the recent phenomenon, where global stock markets crashed because of the Covid-19 pandemic. Gold prices, however, peaked along with brisk trading in gold futures at the Multi Commodity Exchange of India Limited (MCX). There was also a rise in premiums of gold-backed ETFs because of the high demand.
Thus, millennials have adopted a more market-oriented approach towards investment in gold. Rather than purchasing gold as a measure of wealth, the approach has shifted towards factoring stability, liquidity and returns from making investments in both physical and paperless gold. If you want to trade in gold futures at the MCX or gold ETFs at NSE and BSE, always remember to choose only a trusted stock broker. Here, you can get access to state-of-the-art trading platforms for a seamless trading experience. You can zero in on Angel Broking, which provides cutting-edge trading solutions along with zero AMC Demat Account.