How much Gold be in your Portfolio?

Gold,  Real Estate, Fixed Deposits from banks/Post Office/NBFC/Company etc.. form part of portfolio of investments of average malayalee. Gold is handed over as gift at any social occasion depending on the strength of relationship and heavyness of purse. Mostly, it is a intergenerational wealth transfer medium historically for almost every Indian. 

Today gold is available as  gold bonds, gold ETF, gold at commodity exchanges like NCDEX or MCX , gold mixed portfolio of Mutual Funds in addition to physical gold coins/bars from banks, ornaments from gold traders and may be more forms of gold may evolve with digital platforms grow exponentially.

The 2021 gold import bill easily doubled the $22 billion spent in 2020, and surpassed the previous high, set in 2011, of $53.9 billion, according to the official, who tracks broad import trends. In volume terms, India imported 1,050 tonnes of gold in 2021, the most in a decade, and far more than 430 tonnes imported in 2020

India’s gold imports have surged over the last few months, driven by marriage and festival-related demands aswell as people stocking up on the metal, anticipating future hardships and price surges

As on March 24, 2020, notwithstanding the recent price volatility, gold has delivered an average return of about 8.87 per cent over the last 10 years, comparable to stocks and a tad more than bonds and commodities. Over the past decade, Indian equities have given a return of 11 per cent while bonds gave 8.81 per cent. However, commodities gave a negative return of (-)2 per cent. 

The rate of return on gold  are affected by liquidity, diversification, storage cost among others. The different forms of gold are discussed below:

Sovereign Gold Bond (SGB)

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.

The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond shall be one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market. The ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions

 Gold @ Commodity Derivative

Commodities that are traded are typically sorted into four categories broad categories: metal, energy, livestock and meat, and agricultural. Metals commodities include gold, silver, platinum, and copper. During periods of market volatility or bear markets, some investors may decide to invest in precious metals–particularly gold–because of its status as a reliable, dependable metal with real, conveyable value. Investors may also decide to invest in precious metals as a hedge against periods of high inflation or currency devaluation.

In the most basic sense, commodities are known to be risky investment propositions because their market (supply and demand) is impacted by uncertainties that are difficult or impossible to predict, such as unusual weather patterns, epidemics, and disasters both natural and human-made.

There are a number of ways to invest in commodities, such as futures contracts, options, and exchange traded funds (ETFs).

Gold ETF

A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion. In short, Gold ETFs are units representing physical gold which may be in paper or dematerialised form.

Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company. Gold ETFs trade on the cash segment of BSE & NSE, like any other company stock, and can be bought and sold continuously at market prices.

Gold ETFs are essentially open-ended mutual fund schemes which are based on ever-fluctuating gold prices. Gold ETFs have proved to be worthier than physical gold, since gold ETFs not only ensure your investment in the yellow metal, but also provide the flexibility, liquidity and tax efficiency that come with stock investments.

Suggested Portfolio proportion of gold  for Individuals

Experts advise one to allocate 10%-15% of your portfolio towards gold. It is inversely correlated with the stock market and could do well during an economic slump.

Those who read this, also read:

1. Akshaya Tritiya