The Hindu Business Line : More security, less investment

When an average Indian buys gold today, he/she does it with the thought that it is a saving and a security, more than an investment. A comforting thought, nevertheless, when one is spending a big sum on the purchase.

Lend it, spend it, give it away and it comes right back to you." The refrain of a hymn on love rings a distinct bell when Tusshar Mehta of Mehta Jewellery says, "I can't think of anything else which you can wear, bend or even break and it still brings you 80 per cent of its original value."

He is, of course, talking about gold. In particular, the kind of investment potential it carries.

"Conventional wisdom has been that gold is a safe investment, and ever since the dollar was de-linked from gold, it's value started rising worldwide. So, this worked in a country like India where we are wedded to the concept of gold as a safe haven, as a security," says Mehta. But he will not take it beyond that, the reason being, "an investment is something that you put your money in that brings a return." And in that sense, gold doesn't qualify as an investment. It would however work better as a sort of fall-back or contingency plan, for "it is the only thing that you can encash at almost no notice, unlike anything else," he says. Nimmi Joseph, an IT Professional in Chennai, tells you how the Rs 1.2 lakh got from selling 32 sovereigns of her jewellery contributed a substantial amount towards the cost of building her house. "I was lucky because at the time I sold my jewellery, gold prices had shot up. But I wouldn't really call gold an investment; security would be more apt," she says.

Sowmya Sridharan, a chartered accountant in Chennai, would also pair gold with security in the light of its reliability when compared to other forms of investment. "You can bank on the value of gold at anytime, whereas when you park your assets in a company there's no telling when it might go bankrupt," she says.

That it is a safe deposit is the opinion of KR Shankar, a Salem-based chartered accountant, as well. "Gold, in my opinion, is only a reserve that might be of use in financial crisis. It certainly doesn't present a lucrative investment option, especially in the light of findings from the Reckoner, which indicate that over the past 25 years gold has fetched no more than 6 per cent interest p.a, while bank deposits touched an all-time high of 15 and 16 per cent," he says. To him, "gold is a fashion accessory like clothes, and should be treated as such, and not as an investment option." He even goes so far as to call it a `dead investment', because most of the times we buy jewellery "we never think of selling or mortgaging it and in that sense we don't really consider it an investment."

Indeed we have come a long way from the times when the farmer used to hoard his gold in the waistband of his dhoti, says Mehta with a wry smile. He identifies a trend that puts aesthetics and design over hefty returns. "These days people want lighter jewellery both in terms of weight and appearance. There is more accent on beauty and craftsmanship especially in metros and particularly among youngsterswho are buying little pieces of jewellery for the pleasure of wearing it, and if it is gold... so be it."

So when you consider gold as investment, the average Indian today is not "really buying gold; he/she is buying jewellery with the thought that it is a saving, with the thought that it's a security and that's a comforting thought when you spend vast amounts of money," he adds.

Shankar caps by adding, "The resultant return may be happiness and social status but not the return on investment."

While that may be the case with the urban yuppie, it is quite a different story in smaller cities. A Salem-based jeweller's observation is that a paltry 20 per cent of customers prioritise design during a purchase, as against a massive 80 per cent for resale value. "For most people here, the resale value of the gold is an important factor that influences decisions on patterns and designs of the jewellery to be bought," he says. So customers would settle for nothing less than solid ingots of jewellery, where making charges are minimal, consequently affording more resale value. "Investing in gold is common especially to the middle-class buyer because it carries easy liquidity, unlike land or other forms of investment."

Let's not forget that 80 per cent of value that can still be returned for cash, which is "today helped by hallmarking; all you need to do is pay an additional 2 per cent and you get authentic 22-karat gold," says Mehta. So, he adds, "There's greater comfort in buying jewellery."

However, if the allegiance to aesthetics is a growing trend in metros it is also because there is no dearth of other investment options available. "There are so many other avenues competing with gold. You can invest your money in mutual funds, the share market or you can even park your money in liquid funds. With such a wide range of investment opportunities, jewellery by itself has taken a lower slot, and gold has lost some of its importance as an investment," he adds. It is especially in real estate that gold faces tough competition, for with lending rates on land having plummeted, housing is widely preferred over gold as an investment. M. Ramachandar, a Bangalore-based IT professional, further sees "debt funds and government securities as a good investment, and in Bangalore, real estate is seeing a surge with banks going all out to woo customers."

If gold is losing out to other forms of investment it is also because of the misguided notion that it hauls in the cash, which is fine so long as you are planning to sell your jewellery, but not otherwise. "Many times people are misguided that gold is an investment. Once we make it clear that it is a security and something that you can fall back on, that you are wearing a beautiful piece of jewellery, only then will people be rid of the misconception that gold is an investment," says Mehta. Nonetheless, one thing is clear. People will continue to stock up on gold, if for nothing else, at least for the sheer pleasure of wearing it, because as Mehta points out, "it is part of culture, part of our heritage and is woven into the very fabric of our lives. You'll find it everywhere and it is going to be very difficult to get rid of it."

Picture by Shaju John

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