Gold funds or gold ETFs are more liquid options than sovereign gold bonds
Gold funds or gold ETFs are more liquid options than sovereign gold bonds by Srikanth Meenakshi for LiveMint
Investing in SGBs is a good idea if one plans to hold gold till the bonds’ maturity but while buying it in the secondary market, one should see that one gets it at a good price.
I want to invest in gold as it is hitting new peaks due to covid-19. Should I go for gold funds or sovereign gold bonds (SGBs)? Also, what would be better: investing a lump sum or systematic investment plans (SIPs) of mutual funds or SGB tranches?
It is not a good idea to buy gold because it is hitting new peaks. View gold as an asset diversifier, which can provide a hedge to your equity portfolio. Gold has shown a tendency to generate high returns in short periods and then get into a sleep mode—often years of underperformance. So be aware of this and use it to add to other asset classes, with 10-15% exposure in your overall portfolio.
Investing in SGBs is a good idea if you plan to hold gold till the bonds’ maturity. But while buying it in the secondary market, see that you get it at a good price. Also, when you sell them, there needs to be sufficient liquidity. On this count, SGB’s liquidity has not been very good thus far. Hence you will be better off investing in gold funds or gold exchange-traded funds (ETFs). Given that gold has rallied sharply, it is better to invest through the SIP mode.
I am investing in the following funds via SIPs: ₹10,000 in Mirae Asset Emerging Bluechip; ₹8,000 each in Axis Focused 25 and Motilal Oswal Multicap 35; ₹4,000 in Axis Small Cap; and ₹3,000 in DSP Small Cap. The small-cap funds have seen 5-10% losses, while the rest have made small losses. Looking at the current situation, should I continue with small-caps? Do I need to make changes to my portfolio, which is meant for wealth creation? I am 35 years old and have above-moderate risk appetite.