Gold has always been considered as a very attractive asset class for Indian households. Now it is becoming an investing tool as well, as investors have started adding gold in their portfolio as part of asset allocation.
This we can see from the data shared by AMFI as Assets under the management of Gold Funds surged over two-fold to Rs 14,174 crore at the end of December 2020 from Rs 5,768 crore a year ago.
Five Reasons to Increase Holding in Gold Now:
- Prices have come down by 15-20% in the last 3 months.
- Strong long term fundamentals
- Negative correlation with equities reduces overall volatility in the portfolio
- Uncertain global geo-political situation
- Increase in expected demand from central banks – many large economies like India and China have very low Gold Reserves as percentage of total reserves.
So we would recommend increasing holding in Gold on every price correction for long term and as part of asset allocation.
Options for Investment in Gold
- Sovereign Gold Bond
- Gold Mutual Funds
The above two are safe and liquid options for investment in Gold, against physical investment. Physical investment has issues like purity, liquidity and safe-keeping.