Gold investment – 4 things entrepreneurs must know

Monday November 13, 2017 , 3 min Read

After a three-year lull, gold funds are topping the ROI charts. Gold bullion investment has been a conventional practice and had paid great dividends in 2008, but later ran into rough weather. Now, gold is riding high once again as cautious investors are looking for safe havens to park their money. Several pundits forecast better days for the shiny metal as its status as a safe investment has gained more currency. However, if you're considering investing in gold funds for business purposes, here are four things you must know.

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Market demand/supply determines the value of gold funds

The market value of gold determines the value of gold funds and thus, the price of gold in India as well as abroad is an important factor. Usually, when economic turmoil strikes the world, gold prices surge as more investors opt for safe investment bets. So the basic law of demand and supply applies to the sale of gold, i.e. with a surge in demand and dip in supply, the prices shoot upwards. When gold prices rise domestically as well as globally, the value of gold funds increases too.

Gold is a hedge, not an investment

Several investment experts subscribe to the view that gold isn't an investment option. It is instead an insurance premium to hedge against economic turmoil. These experts believe that gold is not like other investment options such as bonds and stocks. For instance, when you invest in stocks, you own a part of a company that is engaged in business. Similarly, bonds pay you interest. The value of gold, on the other hand, goes up or down depending purely on the demand.

Gold funds are best for diversification

Entrepreneurs should mainly invest in gold funds for the purpose of investment portfolio diversification. The proverb 'Don't put all your eggs in one basket', pretty much sums up the reason. Ask any investment advisor, they'd advice you against pushing all your investments into a single product. Since high ROI also means high risk and uncertainty, you always stand to lose heavily if the value plunges overnight. Hence, bullion investment helps in balancing out the risk.

Limit it to an alternate investment option

Building upon the previous points, vouching entirely on gold investments doesn't mean you are free of risk or dip in ROI. Don't go overboard with the funds you allocate to it. Most investment advisors caution their clients against investing heavily in gold. A marginal investment is usually what's advised when it comes to investment in bullion. Large investments in gold can offer great stability during a crisis situation, but it also has the potential to drag your overall returns down in the long term.

The fact is that gold funds are here to stay since most investors consider gold-related products save investments. This is especially true during situations like demonetization which produce volatility in stock markets.