May 07, 2012, 03.51 PM IST
Gold has been treasured as a valuable commodity for as long as one can remember. With the shifting sands of time, it has evolved as an important asset class. From barter trade to jewellery investment and now paper gold, the sheen continues and its universal appeal is intact.
Gold has proven to be a safe-haven investment option not only because of it being a hedge against inflation but also due to its low correlation with other asset classes such as equity and debt.
It has also given positive returns for every calendar year for over a decade. In India, where gold buying is an integral part of social and religious customs, investors now have the option of buying gold in dematerialised or paper form. Paper gold not only offers the convenience of holding the yellow metal in an electronic form with greater price transparency and purity but also negates the risk of storage and theft.
Gold as an asset class plays a very important role in an investor's portfolio as it not only provides stability to returns but also gives an opportunity to maximise wealth over a longer time frame. Further, moving from purchasing physical gold to buying gold in paper form through mutual funds has its own advantages of transparency in pricing, purity, convenience as well as no storage risk.
However, in the short term, gold prices can be volatile due to demand-supply concerns and economic conditions owing to which investors need to adopt SIPs over longer time frames of five years and beyond. The percentage allocation to gold will depend on an investor's risk and return objectives.
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