Akshay Tritiya: Make Gold Fund Your Side Hustle - A Guide For Alternative Funding Options

As personal loan interest rates in India vary between 11 per cent to 24 per cent, and credit card annual percentage rates typically range from 30 per cent to 53 per cent, access to affordable finance for side enterprises or small businesses remains a great issue. As it happens, the Indian public, as a whole, holds more than 25,000 tonnes of gold, according to the World Gold Council, and is thus the world's biggest private holder of the metal. That vast source of funds, stored away and idle in most instances, is increasingly being viewed as a viable source of funding.

Here, gold loans are an increasingly popular means of financing. Such loans with less documentation and quick disbursement allow people to pledge their gold ornaments or coins as collateral against management funding without having to sell the asset. Their growing popularity is in tune with a higher interest in entrepreneurship and self-employment, particularly among youth and first-generation entrepreneurs.

Akshay Tritiya and the Evolution of Gold

Akshay Tritiya, which will be celebrate on April 30 this year, has long been held as one of the most sacred days to invest in gold or begin new financial activities. It has witnessed an upsurge in gold purchases across the country for decades. The thinking is slowly changing now though. Increasing numbers are now preferring to use existing gold stocks rather than buying fresh ones.

This trend is driven by both financial need and cultural significance. Offering gold as collateral provides financial liquidity without reducing its long-term investment value.

What Gold Loans Do for Small Businesses

It is a secured loan in which gold holders pledge their gold holding in exchange for a loan value, which is normally sanctioned promptly and with less eligibility requirements. The interest charged on such loans varies between 8 per cent to 13 per cent annum, which is quite lower than that of unsecured personal loans or credit cards. The loan repayment term is typically six months to two years, and thus a proper short-term source of funds.

Furthermore, the loans do not require the borrowers to have a credit record or evidence of a steady income since the asset itself can serve as collateral for repayment. This makes them accessible to a broad section of the population, including homemakers, informal sector workers, and new businesspeople.

According to Reserve Bank of India figures, gold loans by commercial banks grew over 60 per cent between March 2019 and March 2023. The growth mirrors a larger trend where individuals are taking recourse to leveraging their physical assets for financial needs increasingly.

Risks and Considerations

Though the glaring benefits, borrowers need to be careful while availing gold loans. In case of default, the lenders can auction the collateralised gold to retrieve the loan. As gold carries such strong emotional and cultural connotations in Indian households, the consequences of default can be beyond economic.

Moreover, while the Reserve Bank of India mandates banks and NBFCs to stick to a maximum loan-to-value ratio of 75 per cent, the sanctioned amount may vary depending on the purity of gold as well as market conditions prevailing at the time. Borrowers should also keep an eye on other charges such as processing fee, renewal fee, and valuation fee, which add to the cost of borrowing.

Funding Your Side Hustle Responsibly

Whether it's the purchase of stock, opening a virtual storefront, or acquiring equipment and services, the borrowed money should go into earning income in the period within which repayment must be made.

One should plan the cash flow very much in advance and ensure that the loan should be repaid easily within the specified time duration. Borrowers need to match the offers from a number of lenders, like public sector banks, private sector banks, and NBFCs, to look for the lowest interest rates and terms.

Puja Singh, CEO, Manipal Fintech, says, "We are seeing a paradigm shift young Indians are now using gold loans as a conscious strategy to fund side business opportunities, entrepreneurial dreams, and even personal luxury indulgences. Unlike traditional credit products, a gold loan offers instant liquidity, is collateral-based, and does not negatively impact one's credit history. This strategy offers a hassle-free way to raise liquidity without compromising long-term financial goals".

In the run-up to Akshay Tritiya, banks and financial institutions offer special promotions on gold loans. These include reduced interest rates, waiver of processing fees, or enhanced loan-to-value ratio by a few basis points. Such festive season offers may tempt individuals already thinking of mortgaging gold to raise money to fund a new business undertaking.