Monday being Dhanteras, a festival which Hindus consider auspicious to buy precious metals, some of you may be already ready to go out and shop. Typically, a lot of people use the day as an opportunity to invest in the yellow metal.
But with extreme volatility in gold prices recently, should you invest in gold at all? From close to Rs 23,000 per 10 gram in August, it rose to about Rs 29,000 per 10 gram in September. Now it has again corrected and is around Rs 26,000.
What do experts say?
Despite the sharp run in gold prices in the last few years, some experts feel gold prices would continue to move up. Says Gagan Randev, CEO, Religare Securities Ltd, “Inflation-adjusted prices of gold should have been around $2,400 per ounce (taking prices in 1980s as benchmark), but it is at a much lower level at present. Hence, we expect gold prices to rise further. The global economic scenario would also assist gold to attain higher levels.” Lakshmi Iyer, head (products), Kotak Mahindra Asset Management Co. Ltd, agrees. “With both the euro zone and the US unlikely to overcome the economic crisis soon, gold would continue to remain the preferred choice among investors, which in turn would ensure that prices would rise further though returns may be around 10-15% annually.”
Experts also say the recent correction in prices of gold provides a good opportunity for customers to invest. “The recent correction in gold prices was utilised by speculators to exit the market and only genuine investors are left. As such this is a good opportunity for retail customers to invest in gold,” says Debasish Mallick, managing director and CEO, IDBI Asset Management Ltd.
Should you invest?
In order to have a diversified portfolio, you need to invest some portion of your corpus in gold. “Gold should constitute roughly 10-12% of a portfolio. If someone has already invested around that mark, he should not buy despite Dhanteras. Alternatively, he should make a token purchase,” says Kartik Jhaveri, founder and director, Transcend Consulting (India) Pvt. Ltd.
Things to keep in mind
One can invest either in physical gold, exchange-traded funds (ETFs), gold mutual funds (MFs) or e-gold by National Spot Exchange Ltd. You need to consider the cost as well as the merits and demerits of your investment options.
Physical gold: This is either in the form of jewellery or bars and coins. You can get bars and coins from jewellers as well as some banks and post offices.
However, the Reserve Bank of India does not permit banks to buy back gold, so you would have to go to a jewellery retailer at the time of selling. While some retailers do not buy coins sold by other entities, others would buy it at a discount price that could be as high as 5%.
Also, jewellers will deduct making charges when buying back gold jewellery.
Gold ETFs and MFs: There is ease of transaction in terms of buying and selling in gold ETFs and MFs. Gold ETFs are cheaper than gold MFs, which are basically fund-of-funds that invest in gold ETFs. What’s good about gold MFs is that you can open a systematic investment plan in it. Also, you need not invest in complete units of gold as is the case in ETFs. For example, if 10 grams of gold cost Rs 26,000, but you have only Rs 20,000 to invest, gold MFs will come handy. You also need a demat account to invest in an ETF.
E-gold: This enables you to buy gold electronically, which can be converted into physical gold later. Here, too, you may face issues at the time of selling. But you have to pay a charge to the National Spot Exchange Ltd in any case.
Discounts on gold coins and bars
In view of high gold prices, some banks are offering gold at a discount. For instance, ICICI Bank Ltd is offering a discount of 8% on the daily selling price when booked online. The gold is 24 carat and 99.99% pure. HDFC Bank Ltd is offering gold on an equated monthly scheme with a 4% discount on gold bars purchased through select branches. Kotak Mahindra Bank Ltd is offering 2-5% discount on gold, depending on the customer category and quality purchased.
Tip: Gold prices vary from seller to seller. Several retail jewellers, too, are giving discounts.