Hemant Mishra/Mint
Hemant Mishra/Mint

Investments in gold cannot be expected to give double-digit returns

We don't recommend having gold for more than 10% of your overall investment portfolio

I had invested about Rs3 lakh in gold exchange traded funds (ETFs) in 2007. The returns have not been good. I do not need this money immediately. Would you advise continuing with the ETFs or should I withdraw the money and invest elsewhere?

—B.K. Sinha

Gold ETFs have not done well in recent years. The 5-year returns on this category of funds is -2% at compound annual growth rate (CAGR). However, over the course of the last 10 years (your holding period), the returns have not been shabby at all.

The 10-year CAGR on gold ETFs (till the time of writing this) is upwards of 12% annually. My guess is that the recent downturn in prices is causing concerns for you and hence this question.

In general, investment in gold cannot be expected to return in double digits in a sustainable manner over the long term. For this reason, we don’t recommend having gold for more than 10% of your overall investment portfolio.

If you are comfortable with this returns expectation (high single-digit), and if gold is not more than 10% of your overall portfolio, then you can continue to hold on to it. If not, you would be better off selling your ETFs and investing in a balanced portfolio of mutual funds, especially since you are not in need of this money in the short-term.

I am 38 years old, married and have a child who is 2 years old. I currently have systematic investment plans (SIPs) in the following: ICICI Pru Discovery fund, Rs1,500; Birla Front Line Equity fund, Rs1,500; HDFC Balanced Fund, Rs1,000; Mirae Asset Emerging Blue Chip fund, Rs3,000; DSP Black Rock Micro Cap fund, Rs1,000; SBI Blue Chip fund, Rs1,500; Franklin India Smaller Companies fund, Rs1,500; and Kotak Select Focus Fund, Rs1,500. Apart from this I invest Rs1,500 every month in Public Provident Fund (PPF). Assuming a time horizon of 10 years or more, would you consider this a good mix of funds to continue?

—Chhatra Chhetri

Including your PPF contribution, you are presently investing a total of Rs14,000 a month in various investment options. Of these, roughly about 13% is being invested in debt investments (PPF is all debt, and there is a little bit of debt in your mutual fund portfolio, as part of your balanced fund investment).

The remaining 87% is going to equity mutual funds. Of this 87% equity allocation, 21% goes to large-cap oriented funds and 26% goes to diversified funds (including the equity component in the balanced fund). The remaining 40% goes to 3 mid-cap funds.

This is an aggressive portfolio—both from the perspective of asset allocation (87% equity allocation) as well as fund category choices (40% in small- and mid-cap funds). Even considering your long-term time-frame (10 years or more), I would recommend some modest changes to lower the risk profile of your portfolio.

You could move one of your mid-cap fund’s allocation to the balanced fund.

This would achieve multiple objectives in terms of lowering the risk of your portfolio and it would lower the mid-cap exposure while increasing (even if only slightly) the debt allocation of your portfolio.

I would suggest moving your allocation from the Franklin fund to the balanced fund.

That would increase your debt allocation to 15%, and bring down your mid-cap allocation to about 30%. This portfolio would still be aggressive but would likely have a more stable returns profile.

I recently redeemed units from two mutual funds. I want to reinvest in other schemes after 3 months. For this period—3 months—where can I invest this money? I do not want to put in a bank fixed deposit.


Three months is too short a time period to take any kind of risk with your investment. The only choice for you to consider in mutual funds for this purpose would be to invest in liquid funds. You can invest in liquid funds from the same fund house as of the equity funds where you are planning to invest. This way, when you are ready to deploy your funds, you can simply do a switch without having to redeem and re-invest. Liquid funds typically do not have exit loads associated with them, so this should be a load-free exercise as well.

How does a systematic withdrawal plan work? How is it different from an SIP?

—Parth Singh

Systematic withdrawal plans (SWP) work very similar to systematic investment plans except that they work in the opposite direction.

In SIP, an investor would invest a fixed amount of money every month in a mutual fund or a portfolio of funds. In SWP, an investor would withdraw a fixed amount of money every month from a mutual fund or a portfolio of funds. SWP is typically used when investors want a steady, predictable stream of income from their investment portfolio, and is thus considered a better option for income generation than relying on dividend payouts (where neither the timing nor amount can be predicted).

Srikanth Meenakshi is co-founder and COO, FundsIndia.com.

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