Algo Trading in India |
  • July 25, 2020
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In India, there are two investments that people always consider as safest. Land and Gold, either they invest in land or invest in Gold, as they never witnessed these two prices getting crashed like equity. We always look for opportunities that can generate higher than Fixed Deposit returns, that are relatively safer.

More than investing in land, people always prefer gold. Because liquidity is higher in gold, you can anytime sell it. Whereas selling a land when you need money is toughest task, you need to find the right buyer, right price and tons of paper work involved, whereas with Gold, through ETFs, one can sell their Gold investments in a click of a button, next day the money directly gets credited in their Bank account, so we don’t need to worry about safety of physical gold, as its completely digital now.

Just like how you buy TCS Shares or Infosys shares from your demat account, you can buy Gold ETF as well. GOLDBEES which trades in the exchange, its price performance is directly proportional to physical gold that you buy from store. If you see a news that Gold price is going higher, then you can be assured that not only physical gold price goes up, this Gold ETF price also goes up.

From just 9 Rs. in 2007 March, GoldBees has appreciated a lot and is now currently trades at Rs.44, that’s whopping 377% returns in last 12 years.

Gold ETF has given average returns of more than 12% per year since 2008. Here’s the historical yearly returns for last 12 years. Only three years, Gold price has given negative returns that too not more than -10%. So you funds are relatively much safer with very limited downside.

So as per above analysis, it is evident that Gold price tends to move in longer run and provides much higher returns with least risk. How can one generate a fixed monthly income from Gold investment? It is through a method called SWP — Systematic Withdrawal Plan

Consider you have 10 lacs capital, if you Invest that in Fixed Deposit now, you get monthly interest payout of Rs. 5000 only, since FD interest rates are lower, payout is very less now and it is expected go down further due to our ongoing economic crisis.

even if we consider 8% FD interest rate, then monthly payout is Rs.6500 only.

Instead of fixed deposit, lets find out what would have happened if I have Invested my 10 lacs in Gold ETF and started withdrawing Rs.10,000 every month from my investment.

We calculated this analysis from 2007 March to till date, invested 10 lacs as on March 2007, where Gold Bees was trading at 9.47 Rs. so we bought 105597 shares of Goldbees by investing 10 lacs. Next month we need Rs.10,000 , we need to take this 10k from our investment, so April, we simply sell 1085 shares from our holdings.

By selling 1085 shares at 9.22 Rs. we get around Rs.10,000 payout. So we are left with 104512 shares. Again in May month, we sell 1138 shares at Rs.8.79 and we get Rs.10,000 from it.

By only withdrawing the amount we need and leave the rest of the funds invested in gold, our fund value appreciates over the years. From 2007 to 2020, we have withdrawn around Rs.16 lacs, and still our invested fund value of 10 lacs is now, Rs. 12.5 lacs after deducting the total withdrawn money.

The black line denotes our invested fund value over the 12 years period, blue line denotes our initial invested amount which is 10 lacs and red line indicates our every month withdrawn amount.


What are the risks involved? In the year 2012, Gold after making a peak, started correcting but that lasted only 3 years, then eventually it started its up move. In India, we have Gold ETF only from 2007 onwards, no data prior to that. So we checked the Gold price in terms of dollars, here’s the historical chart of Gold since 1974

As you can in the above chart, Gold moved from $200 to $800 in less than 2 years, 300% increase in Gold with such short span is a huge move, and the bubble was burst in 1980. Then for almost 25+ years Gold never crossed that peak level of $800 again. During the 2008 global economic crisis, it crossed that and made all time high. Gold was in bull run from 2008 to 2012, making 100% returns in dollars terms.

After the correction from 2012, it is now on it way to make new all time high, if that happens and Gold crosses $1900, then we can expect another huge up move in Gold price, who knows it can even make 100% returns in next few years, if it breaks this all time high price.

As long as you have a bullish view in Gold, then this SWP strategy on Gold should give you excellent returns over the long run. People who are looking for best alternatives for Fixed deposit, they can consider investing in Gold Bees and plan a monthly fixed withdrawal amount from it. If you liked this article, please do share share it (WhatsappTwitter) with other Traders/Investors. 

4 comments on “How to generate regular monthly income by Investing in Gold?

  1. If I do not need monthly withdrawal, then which option should I go for – Gold ETF or Gold Bond issued by Government ?

  2. Excellent analysis, looks to be better deal compared to FD.
    Please share the details after deducting the taxes applicable. Maybe on yearly basis to understand the net gains overall.

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