Your Savings vs. Inflation: Why Gold Is the Missing Piece?
- Profile Traders
- Aug 31
- 6 min read
Most people keep their savings in fixed deposits, and these FDs in banks have long been considered safe havens for saving. They offer guaranteed returns, capital protection (₹5 lakh per depositor), and ease of access. Yet, in today’s economic environment, especially when accounting for rising costs in education and healthcare, FDs often fall short in preserving real purchasing power.
When you lock money into an FD, say at 6% annually, it sounds appealing. But inflation steadily chips away at those gains. Consider:
Education inflation: School, college, and coaching costs often grow at rates much higher than the official Consumer Price Index (CPI). In India, education inflation typically ranges between 10–15% annually. So, your FD might yield 6%, but school or college fees might rise at twice that pace.
Healthcare inflation: Similarly, healthcare expenses, doctor consultations, diagnostics, hospitalisation, and medicines often see steep increases, frequently in the range of 15–18% per year.
If your returns don’t keep pace with the inflation rate in these critical areas, your money effectively buys less over time. For instance, if education costs rise 12% a year and your FD gives just 6%, you’re facing a real-term loss of 6%. Over a decade, that gap compounds dramatically.
Therefore, while FDs are low-risk and liquid, relying on them entirely means you’re at risk of declining purchasing power—especially for vital needs like your child’s schooling or unexpected medical emergencies.
Gold - A Store of Value Since Antiquity
Gold’s mystique and value have endured across millennia. Ancient civilisations from Mesopotamia to Egypt, the Indus Valley to China used gold as currency, tribute, and ornament. Its intrinsic qualities helped cement its legacy:
Scarcity: Unlike paper money or digital currency, gold can’t be printed at will. Its limited supply ensures lasting value.
Universally accepted: Across cultures and borders, gold has held and held value, especially during turmoil.
Inflation hedge: In times of rising inflation or currency debasement, gold has often preserved real wealth.
Crisis currency: Wars, financial crashes, political upheavals—people have turned to gold when conventional systems fail.
Hence, gold is more than a commodity; it’s an anchor of trust, an insurance policy in times when financial systems waver.
Why Allocate Part of Your Savings to Gold?
Given its historical strength and crisis resilience, individuals should dedicate at least some proportion of their savings to gold.
1. Portfolio Diversification
A balanced portfolio includes assets with differing performance drivers:
Equities offer growth.
Debt instruments offer steady income.
Real estate offers inflation protection.
Gold often moves independently or inversely from equities and bonds.
Using a % allocation in gold (10-25%) can significantly reduce overall risk and volatility, smoothing returns over time.
2. Inflation Hedge
As discussed, FDs may fail to beat inflation. Meanwhile, gold often preserves value across inflationary cycles. A portion of your savings in gold helps ensure purchasing power even when prices surge.
3. Liquidity & Accessibility
Gold is highly liquid; you can sell quickly in local markets, pawn shops, or online platforms. Its recognition and demand make it easier to access emergency funds, especially during cash crunches.
4. Behavioural Safety Net
Gold offers psychological comfort. In times of market volatility, having a portion in gold—something tangible and timeless—can give you confidence amid uncertainty.
Planning to Buy Gold Ornaments as Investments?
Many people buy gold ornaments or gold coins as part of their savings. While physical gold jewellery or coins have emotional and aesthetic appeal, they're not without some drawbacks:
High premiums & making charges - Ornaments come with large markups, making charges (10–15% or more) significantly reduce value compared to their weight. So, selling retrieves only melt value, not the purchase cost.
Storage & security concerns - Keeping physical gold risk exposures, burglary, loss, or damage. Safe deposit boxes or insurance add to costs.
Liquidity inefficiencies - While resellable, selling jewellery requires appraisal, waiting periods, and may fetch less than expected due to purity disputes or market mistrust.
Possible tampering or adulteration - Jewellery purity may not always be accurate, trusting hallmarks and dealers is essential, and errors can cost significantly.
Therefore, while beautiful and culturally meaningful, physical gold comes with tangible disadvantages as an investment vehicle.
Modern Methods to Invest in Gold in India
Recognising these drawbacks, India offers a growing ecosystem for e‑gold, allowing individuals to invest digitally, hassle-free, cost-effective, secure, and flexible.
1. Sovereign Gold Bonds (SGBs)
Issued by the Reserve Bank of India (RBI), these paper bonds are backed by government securities and the price of gold.
Advantages: Fixed annual interest (around 2.5% p.a.) plus capital appreciation. Fully tradable on stock exchanges. No making charges. Tied to official gold prices.
Maturity: 8 years, with an early redemption window after 5 years.
Tax benefits: Indexation benefit if held till maturity; exempt from capital gains tax on redemption (although interest is taxed as income).
A safe, income-generating, tax-efficient way to invest in gold.
2. Gold ETFs (e.g., via Zerodha, Upstox, etc.)
Gold Exchange-Traded Funds track the price of gold and trade on stock exchanges like any other ETF.
Platforms like Zerodha allow investors to buy the Nippon India ETF Gold BeES, HDFC Gold ETF, SBI Gold ETF, ICICI Gold ETF, and more.
Advantages: Affordable (even with a few hundred rupees, you can invest), highly liquid, scalable, and no storage hassles.
Considerations: Management expense ratio (MER), brokerage charges, and intra-day trading dynamics.
3. Gold Mutual Funds
These mutual fund schemes invest in gold ETFs and sometimes hold physical gold.
Examples include Aditya Birla Sun Life Gold Fund, Axis Gold Fund, HDFC Gold Fund, ICICI Prudential variants, etc.
Offer convenience (SIP mode, systematic investing), but incur fund management fees and exit loads.
Managing Risks When Investing in Gold
While gold is a relative safe asset, prudent investing and risk management still apply. Here’s how to manage those effectively:
1. Don’t Go All‑in
Allocate thoughtfully, typically 10–25% of your total portfolio in gold, depending on your risk appetite, age, goals, need for liquidity and market conditions.
Younger investors might opt for lower gold allocations (5–10%) to prioritise growth; retirees might lean slightly higher.
2. Choose the Right Vehicle
SGBs for safe, long-term investing with income and tax benefits.
ETFs/mutual funds for short/medium-term exposure and liquidity.
Digital gold for micro-savings or on-the-go investing—but limit exposure to regulated schemes or trustworthy platforms.
3. Match with Investment Horizon
Use SGBs for longer timeframes (5+ years) to benefit from interest and tax indexation.
For goals within 2–5 years, use ETFs or digital gold for greater flexibility.
4. Consider Costs
Factor in expense ratios (ETFs, funds), making charges (if any), redemption fees, platform commissions, demat account costs, etc.
Even small costs erode long-term returns—so compare options regularly.
5. Monitor Portfolio Rebalancing
If gold rises disproportionately, your allocation might swell above target—rebalance by shifting gains into other asset classes.
Conversely, if gold lags, consider topping up exposure to maintain balance.
6. Watch for Changing Macroeconomic Trends
Gold prices reflect global interest rates, sentiment, inflation expectations, and geopolitical risk.
If real interest rates are high and growth strong, gold may underperform temporarily—but typically rebounds when risks resurface.
7. Be Aware of Liquidity Needs
In personal emergencies, highly liquid options (ETFs, digital gold) provide quick access—SGB early redemption is limited and may cost an opportunity.
Conclusion
Gold continues to be a pivotal component of personal financial planning—not just a cultural ornament, but a strategic asset.
In essence, gold isn’t about chasing explosive returns—it’s about preserving value and peace of mind amidst uncertainty. If used smartly, gold can act as your financial anchor, buffering inflation, smoothing volatility, and strengthening long-term stability.
Disclaimer:
This article is intended solely for informational purposes and should not be considered as financial or investment advice. The information shared in this article is for educational purposes only. Readers are advised to consult with a qualified financial advisor before making any investment decisions.
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