Dhanteras: Why buying gold coins for investment is not a good idea

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Subscribe to enjoy similar stories. NEW DELHI : For Indians, shopping for gold on Dhanteras symbolizes fortune and prosperity. Tradition aside, the yellow metal is also a good long-term investment option.

Gold bought 10 years ago has yielded a compound annual growth rate (CAGR) of about 11%, whereas CAGR for the five-year period stands at 14.2%. During the five-year period, the precious metal has not only beaten inflation but has also kept pace with the Nifty 50, which has risen nearly 15%. However, most Indians who bought gold on Dhanteras each year over the past decade would not have clocked the same net returns.

This is because people usually buy gold as coins or jewellery—the least efficient form of the metal. Young consumers, especially, are increasingly flocking to gold coins, as they are readily available through online retailers such as Amazon, Flipkart, and even Swiggy Instamart. Mint’s calculations show that the appeal of gold fades when it is bought in the physical form.

Say you bought one 10-gramme 22K gold coin each year on Dhanteras over the last five years. While you have spent about ₹2.64 lakh (including making charges and 3% goods and services tax), the current value of these coins is ₹3.65 lakh, an impressive 11.6% internal rate of return (IRR). However, the value of gold coins is realized when you cash them out or use them for making jewellery.

In the first option, jewellers take a 3-5% cut to pay cash for gold coins. Assuming the jeweller takes a 3% cut, your IRR on cashing out the coins declines to 10.49%. To make jewellery, additional making charges and 3% GST are to be paid.