By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all
In the last 20 years, the average CAGR return on gold is 12%, so whenever gold prices correct from their recent high, investors jump to buy gold. But there is always confusion among investors about whether to invest in Gold through a lumpsum amount or if they should go for a SIP. In this Knowledge series, the pros and cons of both lumpsum investment and SIP investment have been stated, so that investors can take a proper decision.
Lumpsum Investment in Gold
When using a lump sum investment strategy, investors must make a sizable payment all at once. Investors with long-term investment objectives, greater risk tolerance, and in-depth market knowledge should consider it as a viable option. Following are the advantages of lumpsum investment in Gold:
• Commission reduction: In some cases, investing all at once could result in lower commission costs than investing in smaller amounts more frequently.
• No need to set up multiple transactions: Another advantage of lump sum investing is that there isn’t much to do to get set up. It’s a one-time event, so investors can simply deposit their money in the account, and then hit the “buy” button.
Systematic Investment Plan in Gold
SIP is an investment facility that enables individuals to invest small amounts of money in mutual funds at regular intervals. The intervals could be every month, every quarter, every six months, or every year. It is always advised to make long-term investments through SIP because doing so will allow investors to benefit greatly from investing throughout an entire business cycle of gold. Additionally, the investor can benefit from compounding’s power the longer they stay. Investing in gold through SIP (Systematic Investment Plan) has several advantages, including:
• Affordability: Investing in gold via a SIP is a cost-effective choice for investors who find purchasing digital gold through a lump sum transaction to be too time-consuming. Investors can start investing in gold funds through SIP with as low as Rs. 100
• Smaller amounts: SIP allows investors to invest small amounts of money at regular intervals, which can help them build a sizable investment in gold over time. This is especially beneficial for investors who may not have a large sum of money to invest upfront
• Disciplined investment: SIPs help investors maintain a disciplined investment approach. By investing a fixed amount of money at regular intervals, investors can avoid the temptation to time the market and make emotional investment decisions
• Returns: Gold has historically been a good hedge against inflation and economic uncertainty. Investing in gold through SIP gives better returns than lumpsum, as the average buying price is lower and can help investors benefit from the long-term appreciation of gold prices
Conclusion
SIP performs better than lump sum investments in volatile times, as evidenced by the numbers.Since no one can predict market movements accurately, it is extremely difficult to time the market. SIPs benefit from the power of compounding since the capital gains are reinvested in the scheme. On the other hand, lump sum investment fluctuates as per the market movements. Therefore, it is recommended to invest in gold through SIP for the long-term.
It’s important to note that the decision to invest in gold through SIP or lump sum depends on individual preferences and financial goals. Investors should consider their risk tolerance, investment horizon, and financial situation before making a decision.
For a recession-proof portfolio, one should allocate at least 20% of the portfolio to Gold and Silver. And the common way to stay invested in Gold and Silver is to invest 50% in lumpsum at current prices and divide the rest 50% through the Systematic Investment Plan (SIP) every month. Augmont-Gold for All offers both of these investment alternatives through its products like Augmont Digi Gold/Digi Silver and Augmont Gold SIP/ Silver SIP.
Disclaimer: This report contains the opinion of the author, which is not to be construed as investment advice. The author, Directors, and other employees of Augmont Enterprise Private Ltd. and its affiliates cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions expressed above. The above-mentioned opinions are based on information, which is believed to be accurate, and no assurance can be given for the accuracy of the information. The author, directors and other employees and any affiliates of Augmont Enterprise Private Ltd cannot be held responsible for any losses in trading. In no event should the content of this research report be construed as an express or implied promise, guarantee or implication by or from Augmont Enterprise Private Ltd. that the reader or client will profit or the losses can or will be limited in any manner whatsoever. Past results are no indications of future performance. Information provided in this report is intended solely for informative purposes and is obtained from sources believed to be reliable. The information contained in this report is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. We do not offer any sort of portfolio advisory, portfolio management or investment advisory services. The reports are only for information purposes and are not to be construed as investment advice