The sheen of gold has always been irresistible to Indians. We’ve been historically inclined to acquire gold jewellery in the belief that it is symbolic of high economic status. It was also considered prudent, at one time, to invest in gold. However, with recent fluctuations in gold prices, it is natural to wonder if the hallowed yellow metal is still a good choice for investors.
The ideal alternative to investing in gold is real estate investment. Take a look at how they compare across various parameters to see how the two compare.
Parameter | Real Estate | Gold |
|---|---|---|
Size of investment | Relatively large investment required | Smaller amounts of investment are possible |
Tenure | Ideal for long-term investments | Best suited for short-term investments |
Earning potential | Can generate regular monthly income through rent | Returns fluctuate with the market |
Liquidity | Not easy to liquidate | Easy liquidity |
Volatility | Low volatility | High volatility |
Pre-investment understanding | Requires research and understanding of market | Quality and valuation are transparent |
Tax | Structured tax benefits | Attracts capital gains tax |
Economic impact | Good for growth of economy | Adverse impact on economy |
Available capital
One fundamental factor to decide where you should invest is the amount of capital available.
Investing in land requires a significantly larger amount. The general practice is to fund the down payment (20% of the total price) with savings and take a home loan for the remaining. Even purchasing a small apartment requires a few lakhs in rupees.
Investing in gold, on the other hand, can be carried out with relatively smaller amounts of money.
Returns
When it comes to returns, property can translate to regular returns in the form of rent.
Investing in gold can yield fluctuating returns based on market situations.
Nature of investment
Volatility can be a major concern for existing and potential investors. Real estate investment is considered relatively stable whereas gold has proved to be rather volatile.
Investment horizon
Investors seeking long-term options will find a better match with real estate. Property typically yields returns over longer periods rather than shorter terms.
For those who seek short-term investment avenues, gold is a good option.
Liquidation
One of the factors to consider when investing is how easy it is to liquidate if the requirement arises. In the case of real estate, it is relatively illiquid.
Physical gold and ETFs have fairly high liquidity.
Tax benefits
Real estate investment offers people structured tax benefits. As for investing in gold, it attracts capital gains tax.
Impact on economy
Gold is imported from other countries. Importing at more expensive currencies reduces the valuation of the Indian rupee, which then leads to a spike in prices of commodities such as capital goods and fuel. This makes investing in gold detrimental for the Indian economy.
Investing in real estate does the exact opposite and facilitates the growth of the economy.
Overall, experts believe that gold works best as a hedge against economic uncertainty rather than a long-term investment option. It’s time we shed old patterns of thought and embraced the option that is clearly the rational choice.
Credit: RoofandFloor, part of KSL Digital Ventures Pvt. Ltd., from The Hindu Group