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I am a new investor with no exposure to gold. I would like to diversify and have some exposure to it. What should be my overall portfolio allocation to gold?

                        — Satyanarayanan

 

 Gold can offer flat to low returns for a prolonged period and then see very sharp upswings, triggered by a global equity risk-off scenario – i.e., gold typically delivers when equities correct. These rallies compensate for the long periods of flat returns. This apart, gold can be volatile as well, similar to equity. 

Depending on your need to diversify your portfolio, you can allocate 5-15% to gold. If you are a high-risk investor, you can have a lower allocation and vice versa. Ensure that your holding period is at least 4-5 years. 

You can go for gold funds or ETFs—you can use SIPs or lumpsums. Gold funds are best suited for SIP investments and gold ETFs for lumpsum investments. Funds and ETFs are best-suited for tactical allocations based on gold prices. For long-term gold allocations,  you can consider sovereign gold bonds as well. These are 8-year bonds that are linked to gold prices, come with a small interest component and are capital gains tax-exempt if you hold until maturity.

 

I have an active SIP going on in Bharat Bond FoF 2030 and SBI Magnum Constant Maturity Fund. Given the recent interest rate hikes, should I still continue with my SIPs? 

                             — Madhav Pande

 

You can continue your SIPs. However, do note that you need a horizon of at least 5-7 years for funds such as constant maturity, and the Bharat Bond fund is a target-maturity fund. The longer timeframe is needed to allow the ups and downs due to the rate cycle to even out. Currently, the period is in fact good to run SIPs. The rising rates will cause bond prices to fall, which reflects in the fund NAVs. This will offer averaging opportunities, and the advantage of buying on lows (i.e., when yields are high). You will see low to negative returns as the cycle shifts upwards but you need to be able to hold through this period. 

Srikanth Meenakshi is co-founder, PrimeInvestor.

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