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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.


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.