India's favorite non-financial instruments: Gold and Real Estate

Much like how FDs and LIC occupy the top spots in the list of India’s favorite financial instruments, we have two top contenders for the preferred non-financial investments as well. Say hello to gold and real estate. Almost every Indian household’s investment portfolio undoubtedly includes one or both of these.

Wonder why India gravitates towards these non-financial instruments? Let’s find out.

India’s fascination with gold

One of the major reasons Indians love the yellow metal has to do with traditions in many Indian cultures. But even beyond that, there’s more to why gold holds such a special place in the Indian investment portfolio. It acts as the perfect kind of informal insurance when an unexpected emergency strikes.

Interestingly, India as a country does not produce much gold. So, a huge portion of the yellow metal that we consume in the country - either as jewelry or bullion, or as investments - comes from other parts of the world. The rise in domestic demand for the precious metal during the pandemic proves how much we rely on gold during a crisis. Gold imports were up by 22.58% - to USD 34.6 billion - during 2020-21 owing to rising demand.

The advantages of investment in gold

What’s the reason behind this fascination with gold, anyway? Why is investment in gold considered almost a rite of passage in India? Well, gold investments come with their own set of unique advantages. Check them out here.

• Small-ticket investments:

Investing in gold in India does not require huge sums of money. You can begin investing with small amounts too. Fractional investment in gold is very helpful for investors who want to create wealth without shelling out a huge sum of money.

• Highly liquid:

The liquidity of the yellow metal is another reason gold investments are so popular in India. In case of any emergency, converting gold to cash or cash equivalents is very easy because there’s always a ready market for the precious metal.

• Transparent pricing:

Gold’s pricing is also highly transparent. The daily gold price data is available online and in TV news channels too. So, you don’t really have to put in a great deal of effort to find the price of the commodity.

• Multiple investment avenues:

There are also different avenues for investing in gold, like physical gold, digital gold, Sovereign Gold Bonds, gold ETFs and gold mutual funds.

Real estate investments in India

Property investments may seem intimidating for beginners. But for Indians - specifically, for Gen X and Baby Boomers - investment in real estate comes almost naturally. That’s not to say that millennials are behind. In fact, millennials in the country have started to look past physical real estate and are adding REITs to their portfolio.

Going back in time a bit, we see that the (healthy) obsession with buying a house was a signature trademark in our parents’ generation. That was perhaps because a house indicated stability and permanence - two goals that Boomers and Gen X consistently chased after.

Millennials have taken this one step further, and are now looking at real estate as more than a mere opportunity to have a stable place to live in. Investment in real estate is now an easy way to supplement the primary source of income. For millennials buying second and third homes, it’s also another investment avenue that can help create wealth.

The advantages of investment in real estate

Investing in real estate has its unique set of advantages. Check them out here.

• A great way to leave an inheritance

A house is a good inheritance to pass on from one generation to the next. Traditionally, it has always been a sign of affluence in India.

• A hedge against inflation

Real estate, like gold, also tends to act as a hedge against inflation. So, for anyone looking to inflation-proof their investments, adding real estate to their portfolio has been a tried and tested strategy.

• Income tax benefits

Purchasing real estate using home loans gives tax benefits on the principal amount as well as on the interest. This is another added advantage.

• Dual benefit of capital appreciation and regular income

Real estate is rarely a poor investment, because it can always be used to generate passive income via rentals. Additionally, if you wish to transfer the property, you can also benefit from the capital appreciation.

Wrapping up: Gold vs. real estate

In many ways, real estate is quite the opposite of gold. So, the gold vs. real estate debate is wrought with many polar opposites. That’s perhaps why it makes sense to include both these assets in your portfolio. While the yellow metal can take care of your short-term, liquid needs, real estate is more of a long-term asset - one that appreciates well if you leave it be. So, if you really want to go down the gold vs. real estate road, make sure you have some space in your investment portfolio for both these assets.

A quick recap

• Real estate and gold are among the top non-financial assets that Indians prefer.
• Gold investments come with benefits like liquidity, transparent pricing, and multiple avenues for investment.
• Real estate, on the other hand, is a good legacy to leave behind.
• It is also inflation-proof, offers income tax benefits, and comes with the advantage of capital appreciation and passive income generation via rental income.