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Home >Money >Personal Finance >Is it a good idea to invest in gold for an emergency fund?

It is often seen that people use their accumulated gold or ancestral jewellery to fund their emergency cash requirements. During the ongoing pandemic, a large number of people are facing financial difficulties from job losses and pay cuts. Many are seen taking gold loans or selling gold to fund emergency cash needs. Gold is considered a hedge against inflation and a store of value. However, it is a volatile asset. So, if you are building an emergency corpus now, should you be adding gold to your portfolio? We ask experts.

Harshad Chetanwala, a Sebi-registered investment adviser and co-founder of MyWealthGrowth. com.

Usually, emergency corpus should be liquid in nature and at the same time should not be invested in instruments where there is a possibility of loss of capital. In case of bank account or fixed deposit or liquid funds, the possibility of losing capital is quite unlikely. Hence, they are said to be the best options to park your emergency funds. Historically, gold has given returns marginally higher than inflation if held for long term and this aspect of gold can help investors to beat inflation on their emergency funds which may not always happen in bank or liquid funds. This does create a case for gold to be a part of emergency corpus. However, the willingness to liquidate gold at the time of emergency is not easy, as most of us invest and sell gold looking at its price. One may also have negative or low return in gold, if invested at wrong time. Hence, in our view investors should avoid considering gold as a part of emergency corpus.

Shweta Jain, founder and chief executive officer, Investography Pvt. Ltd

I don't recommend gold for your emergency corpus. I would rather go for a savings bank account, ideally a different one from which you usually spend, so that you don't splurge money. Some portion of it could be allocated to bank fixed deposits as well, because this is absolutely safe and if you're going to withdraw it, you won't lose much. But my favorite is an overnight fund/ ultra short term or a liquid fund. A combination of these would work well, too. One month expenses in the bank, 2 months in FD and 3 months in mutual funds. I call it the 1,2, 3 method. Gold is quite volatile for a 3 month period. You can check data and you ideally don't want to lose money when you've stashed it away for a rainy day.

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