Gold vs Equity: Which is a Safer Investment Option?

Saving in the form of currency has become less profitable in recent times. People have started looking for better options to invest their earnings and multiply them. Out of the many options, investing in gold and buying shares in the stock market have been the most popular. These two options have provided higher rates of interest and various benefits to investors. 

Both of these investment schemes behave differently in the market and have a track record of beating inflation. Gold being a highly coveted metal performs better against steady inflation, whereas the stock market gives all-time great returns. But is there a better investment option between the two? 

Gold vs Equity: How is One Different from the Other? 

Gold has been one of the leading forms of assets for millennia. It had always been a precious metal and was used as a replacement for currency. Till today, gold has not lost its value and investing in gold yields high returns. On the other hand, equity has done well for those traders and investors who used proper planning, studied market behaviour, and withstood volatility.

As both gold and stocks behave differently in the market, it is crucial to know how one differs from the other in terms of investment. There are several factors which you must take into account before investing in gold or the stock market. 

• LiquidityLiquidity means the ease with which an asset can be traded and turned into cash without affecting the market. Investing in gold might be rewarding, but its liquidity is poor as compared with stocks. Investing in the stock market is a plus point from the liquidity aspect, as stocks can be easily bought, sold, and converted into currency. 
• Financial ProtectionIn turbulent times, there is high uncertainty in the investment sector. But investing in gold can be a wise move in those times because gold overcomes inflation in many cases. For instance, during the crisis period followed by COVID-19, gold overcame the inflationary trends and gave financial safety to its investors. 
• Rate of ReturnInvesting in equity will give you a higher rate of return as compared with investing in gold. As per a report, the rate of long-term return from equity investment ranges from 14% to 16%. This rate is about 4.1% in gold. 
• Falling PricesAs mentioned earlier, gold has a better edge than equity during tough times. Because of the pandemic, the price of gold has greatly increased. According to the research conducted by Multi Commodity Exchange of India Ltd., the price of gold increased by 7% during the first quarter of 2020, and the rate of return was about 11%. On the other hand, in the case of equity investment, the stock market crashed around 30-40% during the crisis. Mainly, the Indian stock market faced a depletion of about 25% as compared to the global figures of about 15%.
• Tax BenefitsIf you keep tax benefits in focus, investing in equity has many benefits as compared with investing in gold. Under Section 80(C) of the Indian Tax Act, 1961, various tax benefits can be obtained from equity investment. 
• Risk FactorInvesting in gold bears fewer risks as compared with investing in equity, chiefly because of the volatility of the market. Gold is one of the safest asset classes and is the best option to invest in when the market is volatile. In terms of safety, gold has an edge over the stock market.

Which One is Better for Investment: Gold or Equity? 

Both of these investments yield good results, given that you understand the nature of the market and the features of these options. You have to fully assess the pros and cons of both options and conduct proper planning to get the best returns. 

In terms of return rates and liquidity, the stock market gives better returns and has higher liquidity than gold. But investing in gold is better than stocks when it comes to risk factors and market volatility. If you understand inflation, market nature, liquidity, and the behaviour of different assets, it becomes easier for you to decide on a better investment option. 

Conclusion

Whether to invest in gold or equity depends on your risk appetite, investment goals, and needs. The stock market is better for getting higher returns, whereas investing in gold is a better option if you want to invest safely and during high uncertainty. It also helps expand your portfolio diversity.

Instead of buying gold in the form of jewellery, you can prefer buying gold ETFs to avoid hassles like crafting charges, storage, safety, etc. There is another option that is highly opted for instead of gold and gold ETFs: Sovereign Gold Bonds. These provide an assured rate of interest upon investment.

If you want to know more about SGBs and Gold ETFs, you can visit Piramal Finance. Not only this, but the website also provides you with various articles related to loans, taxes, investments, financing options, etc. You can also make sure to take advantage of their other financial products and services.