Gold needs balance: right allocation matters in investing and in taking a loan

Last year, amid global uncertainty and concerns over structural weakening of the dollar, gold emerged as the standout asset coveted by everyone from central banks to retail investors. A demand-supply mismatch pushed prices higher, with gold ETFs even trading at premiums. The stage seemed set for a sustained rally, so much so that Gen Z investors in my circle, once fixated on crypto and small caps, were keen to double down on gold. The metal clearly outshone other asset classes.

Cut to the present, despite the war in West Asia, gold has lost some of its safe-haven shine. The reason lies in the nature of this crisis. This time, the conflict is disrupting energy supplies, fuelling inflation concerns and pushing interest rate expectations higher. Bond yields have risen in response, increasing the opportunity cost of holding gold, impacting its price.

Amid the turmoil, gold prices fell sharply from around Rs1.8 lakh per 10 grams in January to nearly Rs1.46 lakh in March, before recovering to around Rs1.54 lakh currently. For investors who saw gold as the only reliable source of returns amid subdued equity performance last year, this is an important lesson: while gold remains a safe-haven asset and an effective hedge against stock market volatility, over reliance on it can be risky specially during periods of liquidity stress. Read this story by Jash Kriplani, who explains why gold lost some of its sheen during the West Asia conflict and why gold exposure is still necessary but within a 10–15% allocation.

Over reliance on gold as an investment isn’t the only mistake many are making. Pledging gold for quick access to money and leverage, given its bumper run, can be even riskier. The gold loan market now is the second largest retail credit category after home loans, with average ticket size doubling from Rs90,000 to Rs1.96 lakh in just three years. Rising gold prices have increased borrowing capacity and quick disbursals have made such loans highly popular. But what happens when the price of Gold comes down? Your lender may ask you to pledge more Gold to maintain the loan to value ratio or force a sale. In this story, Ann Jacob details out key risks of gold loans and precautions to take if you have no alternative.

The new financial year has once again revived the debate between the old and new tax regimes. Recent changes such as higher allowances for education and hostel expenses and revised city classifications for HRA have made the old regime more attractive again, specially for salaried individuals in high-rent urban cities. Across both regimes, however, one component gaining traction is the car leasing benefit provided by the employers. Leasing a car instead of owning it allows employees to use a car without the ownership hassles, but the bigger benefit is that it helps reduce taxable income. The lease rentals are deducted from pre-tax salary and are considered as an exemption bringing the total taxable income down. Compare this with buying a car on loan, the EMIs are paid from post-tax income offering no tax relief. Shipra Singh in this story takes you through the math.

In the insurance space, Khyati Dharmsi writes about alternative systems of treatment such as Ayurveda, Siddha and Homeopathy, which are increasingly being mainstreamed with strong policy support. The Insurance Regulatory and Development Authority of India has also directed insurers to include AYUSH treatments in health coverage and insurers have tied up with many Ayurvedic hospitals for cashless support. But claims are not always straightforward. That’s because a large share of AYUSH care is delivered as day care, while insurance policies reimburse only treatments involving at least 24 hours of hospitalisation at approved centres. Further given the nature of treatment that could be focussed more on wellness, claims are scrutinised carefully. This makes it essential for policyholders to verify hospital eligibility, policy terms and documentation to avoid rejections.

And finally, in the spending space, Anagh Pal writes about how OTT subscriptions, food delivery and quick commerce with its added costs are quietly inflating monthly expenses. Yet the drain is almost invisible to the households used to the convenience now. Rising delivery charges, higher menu prices and increased ordering habits have pushed monthly costs up significantly anywhere between Rs3000 to Rs8000. This “cost creep” can steadily erode savings, making it crucial to track and rein in discretionary spending.

In this week’s money guru, Ann Jacob spoke to A. Balasubramanian, MD and CEO of Aditya Birla Sun Life Mutual Fund on market volatility and concerns over SIP stoppages. For Balasubramanian, the ability to withstand volatility is what builds real returns for the investors. He also spoke about the AMCs entry into the SIF segment and how investors should tailor their portfolios in the current environment. Read it here and watch the interview here.

Untill next week.