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Gold bars (istock)
Gold bars (istock)

Gold funds or gold ETFs are more liquid options than sovereign gold bonds

Investing in SGBs is a good idea if one plans to hold gold till the bonds’ maturity but while buying it in the secondary market, one should see that one gets it at a good price

I want to invest in gold as it is hitting new peaks due to covid-19. Should I go for gold funds or sovereign gold bonds (SGBs)? Also, what would be better: investing a lump sum or systematic investment plans (SIPs) of mutual funds or SGB tranches?

—Manoj

It is not a good idea to buy gold because it is hitting new peaks. View gold as an asset diversifier, which can provide a hedge to your equity portfolio. Gold has shown a tendency to generate high returns in short periods and then get into a sleep mode—often years of underperformance. So be aware of this and use it to add to other asset classes, with 10-15% exposure in your overall portfolio.

Investing in SGBs is a good idea if you plan to hold gold till the bonds’ maturity. But while buying it in the secondary market, see that you get it at a good price. Also, when you sell them, there needs to be sufficient liquidity. On this count, SGB’s liquidity has not been very good thus far. Hence you will be better off investing in gold funds or gold exchange-traded funds (ETFs). Given that gold has rallied sharply, it is better to invest through the SIP mode.

I am investing in the following funds via SIPs: 10,000 in Mirae Asset Emerging Bluechip; 8,000 each in Axis Focused 25 and Motilal Oswal Multicap 35; 4,000 in Axis Small Cap; and 3,000 in DSP Small Cap. The small-cap funds have seen 5-10% losses, while the rest have made small losses. Looking at the current situation, should I continue with small-caps? Do I need to make changes to my portfolio, which is meant for wealth creation? I am 35 years old and have above-moderate risk appetite.

—Varun

For your moderate risk appetite, 20% exposure to small-cap funds is high. Also, please note that Mirae Asset Emerging Bluechip is also an aggressive fund, from the large and mid-cap category. That will also add to your portfolio volatility, although it is a quality fund. Equities, in general and small-caps, in particular, may need seven to 10 years to make a difference to your return. Of course, it’s important that you stay with the right funds over such periods.

We would recommend that you keep your small-cap exposure to 10% and continue with Axis Small Cap, as its cash holding will reduce any impact on the fund in the event of a steep correction. Please continue SIPs with it. Divert the other small-cap SIP to a multi-cap fund such as Kotak Standard Multicap. Keep a tab on the performance of both DSP Small Cap and Motilal Oswal Multicap 35 for at least four quarters to see if they are keeping up with peers.

I am a government employee and have a low base salary. I want to save 5,000 in mutual funds every month. My time horizon is 10 years. Which funds should I go for, considering that I have low-risk appetite? My mother has 15 lakh in fixed deposits (FDs). Are there better mutual fund investment options for her?

—Name withheld on request

You may invest 3,000 in Kotak Standard Multicap and 2,000 in Aditya Birla Sunlife Corporate Bond, for a 60:40 equity-debt allocation. When your salary rises, move to funds with more styles, so that your portfolio combines different strategies to ensure that one strategy or the other is performing at any point in time. Continue investing, irrespective of market ups and downs.

It is not a good idea for your mother to invest in mutual funds given the corpus size, especially if she is new to mutual funds. She can park some money in short-term FDs for any emergencies and move the rest to guaranteed schemes such as Senior Citizen Savings Scheme, LIC’s Pradhan Mantri Vaya Vandana Yojana and RBI’s floating rate bonds.

Srikanth Meenakshi is co-founder, PrimeInvestor.in. Queries and views at mintmoney@livemint.com

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