The price of gold has been moving upside from last few years. We can analyze (in figure) that price of gold has increased from Rs 9,360 (per 10 gm) in Mar 2007 to Rs 29,510 (per 10 gram) in Jun 2012. It seems time will come when middle/lower income group can’t afford to purchase gold for any occasions. Parent’s dream of purchasing gold ornaments for her daughter in marriage may become sour if price of gold continues to rise in this way. Traditionally, we opt to purchase for things when event is nearby. So, incase parent’s now goes out to purchase gold ornament of 20 tolas (200 grams) it will cost Rs 6 lakhs (approx). To incur such hefty amount will be difficult for any parent when marriage is nearby and they have to manage other marriage expenses too.
Here, we will discuss 5 easy steps to accumulate gold for your daughter's marriage over the years on hand. Let’s take a case study of Mr Ritesh and Priya Shah. They have a lovely and cute daughter of two years old. Her name is Vreeti. Ritesh and Priya want to start accumulating gold for Vreeti’s marriage in best alternative way by regular investment in gold.
Step 1: Make a decision on quantity of gold required for daughter’s marriage
In first step, you need to decide quantity of gold will be required to make jewellery for daughter’s marriage. Assume, Ritesh and Priya wants to accumulate 20 tolas (200 grams) of gold for their daughter’s marriage.
Step 2: Know the time-frame to accumulate gold
In second step, know the time frame you have on hand to accumulate gold. Consider, Ritesh and Priya are expecting Vreeti shall get married at or after the age of 24 years. So, they have 22 years to accumulate gold for her marriage.
Step 3: Start accumulating gold every month in small quantities
In step one, we decided quantity of gold required i.e. 200 grams and from second step we identified timeframe in hand to accumulate this gold i.e. 22 years (22 years * 12 months = 264 months). In step 3 will apply simple formula to know quantity of gold required to buy in each month. The formula to arrive at this is as follows:
Qty of gold to buy in each month = Qty of gold (in grams) to be accumulated / Timeframe (no. of months) in hand to accumulate this gold
In Ritesh and Priya’s case, quantity of gold required to buy in each month = 200 grams / 264 months i.e. 0.76 gram (approx 0.75 gm).
Now, in case Ritesh starts investing in gold to buy 0.75 gm each month then shall reach the target smoothly of accumulating 200 grams of gold in next 22 years. This strategy is similar to systematic investment plan we follow while investing in mutual fund schemes. When price of gold are increasing you need to pay more to buy 0.75 gram of gold but when prices are correcting (declines) you will require less amount to buy required quantity of gold. In this way, accumulation of gold will be easy over the years with volatility in prices of gold.
Step 4: Choosing investment option to invest in gold and implementing the plan
Now-a-days, there are various investment avenues to invest in gold such as investing directly in gold bars/coins by buying from jewellers or banks, gold exchange traded funds (ETFs), gold funds and e-gold from National Spot Exchange Limited (NSEL) which enables investors to invest their funds into gold in smaller denomination and hold it in demat form. Some of the companies offering gold ETFs schemes are Kotak Gold ETF, UTI Gold ETF, Gold benchmark exchange traded scheme etc. Investment into gold funds can be done in SBI gold fund, Kotak gold fund, HDFC gold fund, etc.
Step 5: Reviewing the investment plan and accumulation of gold at regular intervals
Last step for Ritesh and Priya will be to review their investment progress into gold and maintain a record of gold accumulated in small denominations (~0.75 gram) per month. Investing, regularly in gold following this way will easily accumulate 20 tolas (200 grams) in 22 years. They don’t need to purchase gold at higher price after 22 years and incur major expenses during Vreeti’s marriage. They just need to convert into physical form after 22 years from demat account if invested in gold funds, gold ETFs or e-gold options.
You can also accumulate gold for your daughter’s marriage or for any other occasion in similar way by following simple formula as given below:
Qty of gold to buy in each month = Qty of gold (in grams) to be accumulated / Timeframe (no. of months) in hand to accumulate this gold.
Start accumulating gold from today in small denominations and invest regularly till you realize the goal. To identify your goals and to understand ease investment options for investing in gold take an advice of your financial planner/advisor. Have a safe investment strategy to accumulate gold for your long term requirement.
Hiral Thanawala is a PGDM (Finance) graduate and Certified Financial Planner. The views explained by him are personal. He can be reached at firstname.lastname@example.org