Add the lustre of yellow metal to your portfolio. However, analysts advise you to space out the purchases with some care.
Investing in gold may become more lucrative. Post the yellow metal hitting a three-month low last week, both retail investors and buyers might find that entering the market at this point in time may be a good option. Especially in a situation where returns from both debt and equity instrument are not going anywhere.
Analysts consider this correction significant because prices have fallen 6.85 per cent in a month and a half. The metal peaked this year at Rs 19,050 on June 18. Analysts expect prices to fall further.
Bullion traders advise that investors cash in on the opportunities before prices move up.
“Any price close to Rs 17,500 per 10g is a good buy. You can expect prices to rise to Rs 18,500 per 10g,” says independent analyst Bhargav Vaidya of B N Vaidya & Associates.
First-time investor
Should include gold in his investment portfolio. As was evident during the global recession, the precious metal has generally given good returns. It also acts as a hedge against inflation.
The seven gold-exchange-traded funds (ETFs) launched in India have given returns of 25.47 per cent annually for the past three years, beating other asset classes.
If you are a conservative investor, around 15-20 per cent of your portfolio should be gold. The aggressive ones should restrict the exposure to 5-10 per cent.
Take the exposure preferably through ETFs, as they are safer and cost-effective compared to buying physical gold. An ETF buys gold on your behalf and the units are mentioned in your demat account. This means a buyer does not need to spend money on a bank locker or other storage. One can buy as little as 1g of gold, without paying any of the premium that banks and jewellers ask. In addition, investor can liquidate ETFs easily.
They are more tax efficient, too. Physical gold attracts short-term capital gains tax (profit added to income) if you sell it within three years of purchase. In case of ETF, units sold after a year are liable for long-term capital gain tax (flat 10 per cent or 20 per cent with indexation benefit).
Existing Investors
If you already have gold in your portfolio but still want to buy more, the best strategy is to wait for an opportunity for prices to correct further. Gold prices have started rising again, after hitting a three-month low. Gold was trading at Rs 17,810 per 10g on August 2.
“The strategy to accumulate gold is no different from investing in stocks. One should buy at every dip and sell when it crosses the allocated limit,” said Mukesh Dedhia, a certified financial planner, and director at Ghalla Bhansali Stock Brokers.
“Do not wait for prices to go down further if you see any blips. As per the current economic environment, and demand and supply, the prices will hold at 16,500–17,000 per 10g,” said Vaidya.
Those who already have the allocated amount to gold can also look at mutual funds that invest in equities of global gold mining companies. However, this investment should be less than two per cent of the portfolio, as these companies perform only when the demand for gold is high.
There are two such funds, AIG World Gold and DSPBR World Gold. Both funds are less than three years old. The one-year return for AIG World Gold is 29.14 per cent and for DSPBR World Gold is 21.21 per cent. Gold ETFs have returned 19.72 per cent in the same period.
Pre- festival/ Wedding buying
Gold prices have followed a pattern for the past several years during July and August. Before the festival season, gold prices drop and they rise as we near the season. “In the past 10 years, this trend has been repeated seven times,” said Sanjiv Arole, an independent bullion analyst.
Financial planners suggest spreading the purchases if the marriage is four to five months from now. You can buy without waiting for the prices to dip, since buyers would anyway pay a making (labour) charge (from 5-15 per cent) for the gold jewellery they buy.
If the wedding is next year, you can enroll for a systematic investment plan-like facility that many jewellers provide. You can give a fixed amount of money to a jeweller every month; say for one year. At the end, you can purchase jewellery worth the accumulated amount. Your benefit: the jeweller contributes the last instalment.
