Tips to help you diversify into commodities

Radhika Gupta of Forefront Capital Management feels that investors should now diversify their income towards commodities.

Also Read: Fix your goals before investing in stock market: Uday Dhoot Below is the edited transcript of Gupta's interview with CNBC-TV18 Q: Is it advisable for retail investors to trade in commodities given that commodities generally follow international trends and separate cycles that domestic investors may not be entirely well versed in? A: Traditionally, investors have had more exposure in equities and fixed income. They should now diversify into commodities even if it means holding 5-10 percent of their portfolio. What they have to be careful with, as with any asset class, is they should do their research and homework on how to invest in commodities, what instruments to use and what risks there are in investing in commodities. For retail investors, the easiest way to get started with commodities is the gold ETF. Q: Are you currently advising your clients to invest in these metals considering the significant run up seen in gold? Moreover, what portion of a person’s portfolio should be constituted by gold or precious metals? A: We advice people to have constant allocation to gold or silver. There is a perception that gold and silver are sort of risk free things because they have always made money for Indian investors. We advice people not to time gold and silver, just like we tell them not to time equities. We recommend keeping a constant SIP into gold and silver because gold and silver tend to do well when markets don’t. They are hedged against inflation and volatility so they give your portfolio an important diversification benefit. So, between 5-15 percent should certainly be in these metals. Q: Should one invest in gold ETF or gold fund? A: They are both good investment avenues. The difference is, gold ETF requires one to hold a demat account and can be bought in an exchange like a stock. A gold fund is very similar to a mutual fund investment. If you have the ability to setup a demat account and you are little bit savvy, I would strongly recommend the gold ETF. Not only is it more liquid, you can get in and out without any penalties at any point, but the cost of investing in gold ETF are substantially lower. A gold fund generally has about 2x the cost of gold ETF. So, just for that reason if you can pick gold ETF otherwise both are reasonable options.