BackLimit exposure to gold to 5-10% in your overall corpus
It is prudent to invest via a gold ETF or gold FOF
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I have a five-year-old daughter. I want to start saving for her marriage (this could at least 20 years away). I want to invest primarily in gold. Could you tell me what are the most effective options?
—Rajiv Singh
We have come a long way from times when the traditional and the only way to buy gold was to buy physical gold from a jeweller. And here also the gold purchased was mostly in the form of jewellery.
The thought behind the same was that it could be used for personal use as well the expectation that there will be growth in value, thereby serving a dual purpose. And it was true to an extent as the same was passed from one generation to another. But one thing which went missing was wherever it was done as an investment, the benefit was not material.
This was mainly on account of purity, making charges which took the sheen away from the true returns. But so is the love for gold in our country that this fact gets ignored even in today’s times. But then does it means the investment in gold should be done in the form of coins, bars or likewise? Gold as an asset does not have any intrinsic value. It is the performance and dynamics of other asset classes which determine the prices of gold. Gold as an asset class has given huge returns during the years 2006-2011 and which boosted the confidence of investors in gold.
Hence, what should be done? One way to determine the need for gold as an asset class is the extent you want to use for personal usage and which in your case can be for your daughter’s need. And if you want to take a higher exposure, then limit your exposure to gold to not more than 5-10% of your overall corpus.
There are more options available now to invest in gold. While the option to buy physical gold still remains, this should be restricted for your personal use. Another option which has come up in the last few years is gold exchange-traded funds (ETF). Typically one unit of Gold ETF is equal to 1gm of gold and you can buy in any multiples of unit.
Another option is to buy Gold fund of funds (FOF).This is similar to an ETF except that you don’t need to have a demat account and you can also invest through a systematic investment plan in the same.
And if the purchase is to be done for investment purposes, it is prudent to invest via a gold ETF or gold FOF. You should also consider other asset classes such as equity and debt mutual funds to build a corpus for your daughter’s marriage.
Queries and views at mintmoney@livemint.com
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