Since the immemorial times, the glitz of gold has always been successful in enrapturing the Indians. Being the second largest consumer nation of gold in the world, India is known all across the globe for its significant inclination towards investing in gold as it is being heralded as the emblem of elite economic status and safe haven for investment. However, since asset diversification has become the safest investment mantra for prudent investors, it has become of pivotal importance for an investor to split his funds and invest in various investment instruments.
Among the various investment options available, realty is another conventional investment avenue that has bestowed investors with rewarding yielding opportunities. Following here's an outlook on how both these two options can be compared on the basis of a set of crucial parameters.
Types of returns
- Returns on property investment: Investing in the real estate market offers you the scope of whopping gains in the form of rental income and capital appreciation. Though capital appreciation is unforeseeable in nature, we have observed many property investors in earning a lump sum amount of profits by buying and selling the property at the appropriate time.
- Passive Income: Considering the anatomy of real estate investment, rental income undoubtedly remains to be more predictable, and can be documented if needed, by preparing a long-term agreement between tenants and landlords. In relation to the increasing rate of relocation and shifting or the steep rise in the market price of real estate property, the demand for rental property is also increasing steadily. Thus, adding a realty property proposition to your investment portfolio can serve as a prime source of passive income.
- Returns on Gold Investment: Needless to say that, there is a set of gold investment options including physical gold in the form of jewellery, coins, bars and various other virtual assets such as Gold ETFs, Gold Funds of Funds, Equity-based Gold Funds, Gold Mutual Funds and much more. Considering the aforesaid, the value of physical gold, gold mining shares and funds apparently are appreciating and offer dividends as a means of return.
- Capital Appreciation: In contrast to the proposition of renting or owning a property, investing in physical gold will not serve as a source of regular income. Due to this reason, astute investors who are mostly in need of a regular income source, mostly prefer to invest in properties and bonds instead of blocking their funds by purchasing gold. On the contrary, they consider investing in gold as an efficient means of portfolio insurance.
They generally own gold bars and coins with the hope that the market value and price of gold will appreciate. The rate of appreciation is calculated by multiplying the underlying gold price along with the total weight of gold possessed by the investor. Over the years, Gold has been observed to cope with the rate of inflation, especially during the phase of political or economic instability.
- State of Liquidity for Real Estate: Type of the property, its location and the market trends are some of the vital factors that influence the task of offloading a property. Considering the aforesaid, investing in the modestly priced properties will help you in increasing the total number of prospective buyers and give a significant leap to the property's price. Generally, apartments which, are situated near to the transport hubs are known to be the most adaptable as per fluctuating market conditions. Considering the macro scenario, it takes an average span of minimum 5-6 months to sell the real estate property, even in a favorable or growing market. Moreover, the possibility of selling a property is influenced by the particular location, where the property is being located.
- State of Liquidity for Gold: The high demand for gold makes it more liquidatable which, you can gain at specific or smaller amounts. Thus, irrespective of what the market price is; investors generally succeed in getting a sale within a short span if required. The rates might vary on the basis of the market scenario, however, the difference is expected to be negligible. The extent of flexibility offered by gold cannot be matched up by property and in a state of sudden collapse, you might end up in incurring significant losses.
An elemental factor that undeniably influences the investment decision is the capital amount to be invested. Investing in realty needs a substantial hefty amount of funds. Generally, investors used to pay only the down payment (around 20% of the total value) from their own savings and avail a home loan to pay the residual amount. On the contrary, gold can be invested in smaller fractions and gain relative returns depending on the market situation and total quantum of investment.
Impact on the Economy
A significant portion of the total amount of gold being consumed in India is imported from other nations including Switzerland, South Africa, Australia, USA and Russian Federation. As per the reports of Reuters, the total quantum of gold imports in India has increased to around 67% in the year 2017 as the jewellers restocked their inventory levels for coping up with the rising retail demand. Considering these significant facts, importing gold at expensive international currencies will trigger a noticeable fall in the valuation of Indian Rupee as a consequence of which, the economy will experience a spike in the market price of various other commodities including fuel and capital goods. On the contrary, investing in real estate will work just in the reverse way and stimulate growth of the Indian economy.
Following here's a quick rundown on the various points of distinction for attaining a clear, unambiguous perception of gold and real estate as two potential investment modes.
||Negative Impact on the Indian Economy.
||Stimulates growth of the economy.
||Easy to liquidate compared to real estate.
||Comparatively less liquidating.
||More volatile compared to real estate.
||Comparatively less volatile.
||Rate of Return might fluctuate as per the market scenario.
||Offers the scope of earning regular returns in the form of monthly rent.
||Facilitates capital gains tax.
||Facilitates structured tax advantages.
|Size of Investment
||Investment in smaller fractions is possible.
||Comparatively larger amount of investment required.
The Final Note
Asset or investment diversification has always become the key for a keen investor to plan his financial portfolio strategically and maintain balance, thereby playing safe. For a mature realty investor, investing in gold can serve as an efficient way of hedging his overall investment portfolio. On the contrary, investing a portion of your hard-earned money in real estate will help you to earn regular returns in the form of rental income. Thus, the final note is; to consult an investment manager or consultant and plan a goal-specific, diversified investment strategy while keeping a balance between the two and preserve your wealth meticulously.