Gold is and always will be a key investment product in India. Buying gold has evolved from traditional approaches like buying jewellery or gold coins to the relatively recent trend of digital gold. From gold ETFs (Exchange Traded Funds) to gold mutual funds, there are many ways in which you can invest in gold.

Here is the basic and beyond of what you need to know before including the shiny metal in your investment portfolio.

1. Gold is the “foundation asset”

The World Gold Council sees gold as the foundation asset in a savings portfolio and rightly so. For decades, investors have used gold as an asset that offers safer stores of value and is a potent wealth preserver.

2. Physical gold or digital investment?

If your objective is to make the most of the increasing value of gold in the future, but not spend on physical gold assets, gold funds like ETFs and mutual funds are your answer.

Gold ETF – Exchange traded funds track the price of domestic physical gold and can be bought and sold at stock exchanges, with gold as an underlying asset.

Choosing ETFs over physical gold will mean no extra making charges, transparent pricing, and quashing concerns of safe keeping.

Keeping an eye on the market will help you opt for the fund which has a high trading volume and is low on tracking errors. Also, note that gold ETFs are taxed and are non-equity investments.

3. Investing in gold may not give you exceptional returns

It is fair that you have thought of the yellow metal as a hedge against financial catastrophe. But be prepared for returns that do not match your expectations. The gold highs come with lows too. Market moods change unexpectedly and rising investor confidence will mean a shift to high risk, extra return options, thus hitting the price of the yellow metal. Some experts even believe that the return will be restricted to single digits over a long period.

4. Limited exposure is good exposure

The ideal exposure to gold in your portfolio should be around 5-10 percent as suggested by many experts. While going beyond that figure may warrant more stability during a financial crisis, it can also significantly bring down the overall returns. Many ETFs have, for instance, seen returns fall over the last few years.

The feelers from investors right now, however, point to rosy days ahead considering the economic volatility around the globe. But being cautious while investing in gold is always a good habit.

5. Investing in gold? Think long term

Link your investments in gold to a long-term goal. See it as a long-term cushion to financial jerks, rather than a high-return foolproof investment. When markets are volatile, gold will look like a golden (pun intended) goose. But when stock markets are riding high, your gold investments may feel like a downer. If you want short-term returns on your investments, investing in gold is not a good idea for you.

Featured Image Source

Related: 10 Investment Avenues For Women In Their 20s And 30s With Dependents