I am 40 years old and want to accumulate gold for my daughter’s wedding. So far I was buying physical gold but now I want to invest through exchange-traded funds (ETFs). I can save Rs 25,000 every month. Which fund should I pick? Is there a right time to withdraw? I will remain invested for 15 years.
Investing in gold via ETFs or through gold funds is a much recommended option instead of buying physical gold.
ETF offers you many advantages over physical gold—transparency is one of them. There is no question on quality as you buy gold in paper form and gold bullion equivalent to the same is held in 99.5% purity. The price of ETF is per 1g of gold. This brings more flexibility as you can buy any quantity and any denomination. You pay a premium (cost of buying) on buying ETF or a fund. In case of physical gold, you pay much more and it is built in the price when you buy the same physically. Also, in case of ETF, there are no making charges. In ETFs, liquidity is high as they are traded on stock exchanges or the same can be redeemed by fund houses. Further, they are more tax efficient and they become long-term capital gains if held for at least a year, unlike physical gold that becomes long-term capital gain only after three years. Safety is another feature which makes ETFs a better option since there is no risk of theft.
However, as an asset class, your exposure in gold should not exceed 5-10% of your total corpus. You should try to create an asset allocation where you have adequate exposure to various asset classes such as equity. This along with debt and gold asset class should help you diversify your portfolio. Make these investments through systematic investment plans (SIPs).
Also, as your investment horizon is long, you should consider equity as the core asset class and debt and gold should give stability to the portfolio.
Within the equity asset class, you can consider large-cap funds, where ICICI Prudential Focused Blue Chip Fund is a good option; and multi-cap funds where UTI Opportunities, Reliance Equity Opportunity and Canara Robeco Equity Diversified Fund are good. Among mid-caps, IDFC Premier Equity and ICICI Prudential Discovery Fund are recommended. You may consider hybrid funds such as HDFC Prudence, HDFC Balanced and Tata Balanced.
In the debt space, you can stick to short term and dynamic funds such as Templeton India Short Term Income Fund and Birla Sun Life Dynamic Bond Fund.
The advantage of buying a mutual fund is you don’t need to churn the same as the fund manager is doing the same regularly on your behalf. You job is to ensure the fund is performing well versus the benchmark and its peers.
You can consider switching from equity to debt as you come close to your investment horizon.
Surya Bhatia, Certified financial planner and principal consultant, Asset Managers
Queries and views at email@example.com