Gold is at six month low. It is below Rs 30,000 per 10 gm in rupee terms and below USD 1600 per ounce in dollar terms. Gaurav Mashruwala, certified financial planner says gold should be part of every portfolio including debt and equity.
He, however, cautions not to invest in gold just because price of gold has gone down but in case percentage wise one's allocation has reduced due to fall in price.
He advises that one has a demat account then one should look at buying gold through an gold ETF where the spread is less and more trades.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Investors are likely to feel that they will see lower levels on gold and silver, and some people might jump in because they see a buy on dips kind of story? How should a retail and personal finance investor approach this selling?
A: Usually, when there are turbulences, we say instead of focusing on the market conditions, go back and focus on your own condition. Which means look again at your portfolio; look at your financial goals. Usually, gold should be part of every portfolio including debt and equity because the correlation between debt and equity is negative. Which means when equity is performing well, debt will give you poor returns and when debt is performing well, equity will give lower returns. However, gold does not have any relation to either of this. To that extent, gold acts as a balancing factor.
So don’t invest in gold purely on momentary basis because the price has gone down. However if your allocation has reduced percentage wise and value wise then pick up some gold. There is no need to move in and move out, and exit. There is no need to do anything as far as retail and personal finance investors are concerned.
Q: For a person who wants to get to that level where 5-10 percent of your assets should be in gold. They would prefer buying not at Rs 30,000 per 10 grams but at Rs 28,000 per 10 grams. In that sense, should a little more be done or should one just stick to SIP?
A: If your allocation has reduced, for example if you have decided that you want 10 percent into gold and the rest 90 percent into debt and equity, whatever your composition is. Now, with this fall, your gold valuation would have gone down and you need to jack it up but the only thing is you don’t get into it at every dip.
Normally, we say that if the deviation is more than 8-10 percent which means you have decided you want 10 percent into gold but it has come down to 8-9 percent then you want to hike it because from the overall allocation that you had decided, it has dipped. Otherwise, if it is just miniscule percentage here or there, just live with it. Keep doing your regular monthly or quarterly allocations that you are doing into gold. Don’t get too bogged down by these market movements for retail and normal investors.
Caller Q: I already have investments in gold and have a Reliance Gold Savings Fund, should I increase my investments into gold?
A: If the caller has a demat account or something then ideally he should buy gold ETF instead of picking up a mutual fund which puts into gold ETF because that’s where the cost increases. He can do it on his own and pick up gold ETF on regular basis.
Now the ETF that should be picked up is where the difference between the buying and selling price of that particular ETF is less, which means the spread is less. Lesser the spread, more beneficial to the investor; more the spread, the benefit is to the broker. So he should pick up gold ETF where spread is less.
Secondly, he should look that particular ETF that has enough number of trades, so there is liquidity. Because if at some point of time he wants exit, he should pick up an ETF, which will have higher liquidity.
Eventually all these ETFs and gold funds buy into physical gold and they are kept with custodians. So in terms of safety and in terms of one over the other, the underlying asset and the pricing remains same. The only way investor benefit is by choosing one which has lesser spread and which has more trades and that’s what is better for him.
Q: Do you recommend any kind of investment in silver at all in 2013?
A: What happens is that silver from investment perspective; people have to only buy physical silver. We don’t have any ETF or any other products. While there could be something on commodity exchange, there isn’t anything here. Hence for a smaller invest or retail participant, it is not very easy from the purchase point of view and storing point of view. To that extent there is this little difficulty.
Otherwise silver should also be part of portfolio but a small investor who wants to invest Rs 5,000-10,000-20,000 every month; he doesn’t have much option unless he is buying coins and all and then stores it physically. So that is a handicap and one has to deal with that.