It is often seen that people use their accumulated gold or ancestral jewelry to finance their emergency cash needs. During the ongoing pandemic, large numbers of people face financial hardship due to job losses and pay cuts. Many are seen taking gold loans or selling gold to fund emergency cash needs. Gold is seen as a hedge against inflation and a store of value. However, it is a volatile asset. So if you are building an emergency corpus now, should you add gold to your portfolio? We ask experts.
Harshad Chetanwala, investment advisor registered by Sebi and co-founder of MyWealthGrowth. com.
Usually, the emergency corpus should be liquid in nature and at the same time should not be invested in instruments where there is a possibility of loss of capital. In case of bank account or term deposit or cash, the possibility of losing capital is quite unlikely. Hence, they are said to be the best options for parking your emergency funds. Historically, gold has yielded slightly higher returns than inflation if held for the long term and this aspect of gold may help investors beat inflation on their emergency funds, which may not not always happen in bank or liquid funds. This creates a case for gold to be part of the emergency corpus. However, the willingness to liquidate gold in an emergency is not easy, as most of us invest and sell gold by looking at its price. One can also have a negative or low return on gold if it is invested at the wrong time. Therefore, in our opinion, investors should avoid viewing gold as part of an emergency corpus.
Shweta Jain, Founder and CEO, Investography Pvt. Ltd.
I don’t recommend gold for your emergency corpus. I would prefer to go for a savings account, ideally one other than the one you usually spend, so as not to splurge. A part of it could also be allocated to term bank deposits, because it is absolutely safe and if you are going to withdraw it you will not lose much. But my favorite is an overnight / ultra short term fund or a liquid fund. A combination of these would work well too. One month in bank fees, 2 months in FD and 3 months in mutual funds. I call it the 1,2,3 method. Gold is quite volatile for a period of 3 months. You can check the data and ideally you don’t want to waste money when you have it hidden for a rainy day.
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