Why you should look beyond physical gold, while saving for wedding

A relatively new entrant to the aspirations list of today’s generation is a destination wedding. Since there is only one opportunity to meet this aspiration, one has to be financially prepared in order to avoid disappointments. 

Wedding, in the Indian context, is an elaborate and more importantly, an expensive affair, irrespective of whether it is a destination wedding or otherwise. Many people in India, start saving in gold for their daughters. On every occasion they accumulate more of the metal in the form of either ornaments or coins. This is done with a view of accumulating her “Stree Dhan” over time so that parents don’t feel the pinch at the time of the wedding. Gold is also favoured as it is considered to be a safe investment option which would never fail to deliver if things go wrong. 

Go for paper gold 

While, this is a prudent habit, there are two factors to keep in mind. The first is that there are better ways to invest in gold than the physical gold purchase, in the form of Exchange Traded Funds (ETFs) or Government of India’s Sovereign Gold Bonds. There are no charges as paid by investors at the time of buying or selling like in physical gold. The Government Gold Bond Scheme pays interest of 2.5% (payable semi-annually on nominal value). There is no risk of theft like physical gold. Purity of gold is also taken care of with bonds as compared to physical gold. 

Choose equity for wealth creation

The second factor is to think of equity as a tool for wealth creation. The idea for saving for a wedding is to use the corpus to give your daughter a meaningful kitty and spend wisely and to your heart’s content for her wedding. Equity has historically created wealth for people who believed in the asset class. 

If we just evaluate the S&P BSE Sensex - the index was conceived in 1979 and had a value of 32969 as on Mar 31st, 2018. This simply means that had we invested in the Index (passively managed) a sum of Rs 100 it would be Rs 32,969 on 31st March 2018. The investment would have grown at the rate of 16% CAGR. At times when we talk to our investors by how much the money has multiplied – they take time to spell out a number that their capital would have multiplied 330 times. And this is when we are talking of a passive investment in equities. Actively managed equity mutual funds have delivered higher returns over long time periods.        

Buy equity too on special occasions 

When it comes to gold, we don’t track daily movements. We never panic and sell if prices crash. On the contrary, we buy more. This attitude is optimum to have if you are an equity investor. If Investors buy good growing businesses and are patient when markets are volatile, they should not press the panic button. 

If you have set aside the investment for your daughter’s wedding, it is a long-term goal. Do let your investment compound over time and not react impulsively. The best way to accumulate wealth in equity for your daughter is to start a Systematic Investment Plan (SIP) when she is born and then on every occasion (her birthday or festivals) top it up with some more investment. 

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Time will fly and you will not even realise when your daughter reaches marriageable age. A wedding typically sets you back by a large part of your savings. Building a corpus dedicated for the purpose would remove worries at a later date. A larger corpus would allow you to go for a destination wedding.

GOLDEN RULES

Just as in gold, don’t track daily price movements in equities or sell if prices crash. On the contrary, buy more  

To accumulate wealth in equity start a SIP when your daughter is born and top it up on her birthday or festivals

(By Shyamali Basu, senior vice president and head-products & marketing at HDFC Asset Management Company)

Source: DNA Money