Buy sovereign gold bonds, limit exposure to 5-10% of portfolio
Wed Sep 11 2019
Investors seeking to include gold as an asset class in their
investment portfolios could consider the 2019-20 Series IV of sovereign gold
bonds, which are open for subscription until the end of this work week. These
bonds are available at ?3,840 per gram for digital payments and ?3,890 per gram
for payments through the physical mode.
“The US markets are in their 10th year of bull-run and look
overvalued. Globally, we are in an environment where there are negative
interest rates in many countries,” said Ashish Shanker, head (Investment
Advisory), Motilal Oswal Wealth Management. “Investors should have an
allocation of 5-10 per cent gold in their portfolio as an insurance against
global uncertainty and rupee depreciation.”
Financial planners also recommend gold due to its low correlation with
traditional asset classes such as equity and debt.
Gold prices have climbed 25 per cent in the past one year, and the
precious metal has been one of the best performing asset classes. The S&P
BSE Sensex has lost 3.22 per cent, while an investment in a liquid fund earned
6.73 per cent. However, over 3-year and 5-year periods, the yellow metal has
gained only 5.93 per cent and 5.92 per cent, respectively.
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Sovereign gold bonds are a good option to take exposure to gold as an
asset class, believe financial planners.
“Gold bonds do not have any expense and investors earn an additional
2.5 per cent interest every year and these are one of the best ways to take an
exposure on gold,” said Amol Joshi, founder, Plan Rupee.
Gold bonds score on the taxation front as they do not attract capital
gains tax if held until maturity. He advises investors to hold them until
maturity as although listed on the BSE and NSE, liquidity for these instruments
could be less.
Sovereign gold bonds have a tenor of eight years, with investors
having the option to exit after the fifth year on interest payment dates. The
redemption price will be the simple average of the closing price of gold on the
previous three days.
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