Take SIP Route to Start Investing in Gold ETFs

Vidyalaxmi has some sensible advice for those undecided on gold purchases now Gold is shining bright. The metal rose for a third successive month in August with a gain of 4.8% — the largest one-month increase in price since January. And with the global economy in turmoil, it is only expected to rise further. "First, hot money is chasing commodities, which has pushed up the prices of gold, silver and other commodities.  Second, whenever an economy encounters a big calamity, investors tend to rush towards gold as a stable investment option," says Richa Karpe, director (investments), Altamount Capital. "Indians and Chinese have been traditional investors in gold. But now several investors in Western countries who didn't have any exposure in gold are buying it even at higher prices. Now, several family offices have advised their international clientele to have 5-10% of their entire financial portfolio to be invested in gold," Karpe adds.  There are several factors that support the higher prices of gold at current levels. Also, Indians associate buying gold with the festive season and auspicious days, which are around the corner. The expected increase in demand during the festive reason will only push up the price of gold. That is exactly why experts ask investors to hold on to their gold investments for some more time.  "I will not recommend any investor to book profit now because of the ongoing domestic and global uncertainties. They should hold on to their investments in gold for now," adds Richa Karpe.  As for new investors, experts ask them to limit their exposure in gold to 5-10% of their total portfolios. "If an investor has less than 10% exposure in gold, he/she can increase it up to 10% in a staggered manner," says Amar Ranu, senior manager (wealth management), Motilal Oswal Wealth Management.  NEW INVESTORS  "Even though the price of gold has touched new peaks, an investor can enter the market through the SIP route today as it takes care of the average cost. This is because the price of gold is going to rise further from here given the uncertainties coupled with the upcoming festive season," says Ranu. "Certain brokers are offering SIP facility in gold ETFs. However, an investor should avoid investing lump sum amount in gold today as you cannot time the market," he adds. "For retail investors, gold ETFs are the preferred vehicle for investing in gold. While they do charge an annual fee, they are more tax efficient than physical gold, easily tradable, available in small denominations and can be kept in demat accounts," says Rishi Nathany, CEO, Dalmia Securities. In case of gold ETF or a gold fund of funds, the investor will not see physical gold. Hence the custodian of the gold or the AMC should be trustworthy and be financially sound.  Investors who don't have a demat account can consider gold fund of funds which invest in gold ETFs. You can invest in physical gold by buying gold bars or coins, but it comes with disadvantages like storage costs and wealth tax. Moreover, you have to conduct due diligence on the purity of the gold before buying. "The form of investment also depends on the end-use of gold. If parents are investing in gold to make jewellery for their children in the future, I would advise them to invest in coins/bar. If it is for retirement or just another investment for retirement, I would recommend ETFs as they act like quasi cash," says Suresh Sadagopan, certified financial planner, Ladder 7 Financial Advisories.  THE WAY AHEAD  "However, as an investor you should know that even as gold prices have run up in the recent past, it does not offer you an interest income unlike other instruments. It does not even offer a dividend like equity instruments. It offers capital appreciation in line with gold prices," says Rishi Nathany.  Also investors have a tendency to chase a single asset class when it runs up in one direction. "You should stick to your asset allocation strategy. You can be marginally overweight on gold now and underweight on another asset class because of the external factors. But you should never pull out all your money from other asset classes and move it into gold," cautions Richa Karpe.  vidyalaxmi.v@timesgroup.com