Yellow metal shining: Gold ETFs good for long term

Bangalore: All that glitters is gold this Akshay Tritiya. Gold, among all asset classes, has remained a time-tested hedge against inflation. According to fund managers and financial planners, gold ETFs (exchange-traded funds) are turning out to be a top pick for investors with long-term plans. Gold ETFs function like mutual funds, but they invest in gold bullion instead of equities. Like shares, investors' holdings are measured in units and the price of gold is reflected in the value of each unit. Currently, there are seven gold ETF funds traded on the BSE. Investments in paper gold are not liable for wealth tax. 

    As per data from Association of Mutual Funds in India (AMFI), the net inflows into gold in 2009-10 touched Rs 804 crore, as against Rs 600 crore pumped into equity funds. "History has shown that, when equities perform badly, gold tends to outperform," says Chirag Mehta, fund manager (commodities) in Quantum Mutual Fund. He says there are times when gold under-performs equities by a large margin. "But then, you don't question your life insurance, when you come back home safe everyday. It is something similar with gold. It is for that rainy day. It is recommended to have an allocation ofabout 15% of one's portfolio to gold," Mehta says. 
    Lakshmi Iyer, head (products) at Kotak AMC, feels that though the bulk of the demand is still through the physical gold route, gold ETFs complement one's investment portfolio. "But investors have to wait for the right entry point before investing in gold ETFs," she says. She indicated that prices are at a high now, and investors may do well to wait for some time. 
    Mehta says gold should be purchased with a view that it would act as insurance for one's portfolio in turbulent times and will be a keeper of value. "In 2008, in the midst of the financial crisis, when most of the assets lost heavily, gold provided very good returns. The Sensex declined by 52%, whereas gold in Indian rupees was up by 30%," Mehta notes. On the flipside, equities outperformed gold last year. But fund managers believe that it should not deter investors from playing gold ETFs.