Gold price surges come and go, stick to a 10-15% allocation

Another alternative to investing in gold could be Gold ETF.

Gold has been a popular topic in recent investment conversations across different platforms, including financial portals, YouTube, articles, and social media. The returns generated by gold continue to attract the attention of many existing and prospective gold investors.

There also exists a sense of FOMO (fear of missing out) in some investors as they keep looking at the surge in gold prices but do not have any allocation in it.

Throughout the years, many investment advisors and fund managers have been advising having some allocation in gold for multiple reasons.

The primary reason is its ability to do well during uncertain financial and geopolitical environments. It is considered one of the safest asset classes during such times.

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If we look around, there continues to be an environment where there are some uncertainties. Such situations are not happening for the first time and certainly, this is not the last time. It is this feature of gold that should motivate one to add or retain its allocation in the overall portfolio and not the returns that are flashing across different platforms.

It has to be looked at from an asset allocation perspective and not a high return-generating investment.

Investment avenues

For many years, Sovereign Gold Bonds (SGB) have been one of the preferred avenues to invest in gold as it has the advantage of additional interest and is tax-free if held until maturity along with the growth in gold prices.

But with no new SGB Series coming up for subscription and a high possibility of premature redemptions after 5 years of the existing bonds over the period, the question may come up in our mind how to invest now. Despite this, SGBs are still a good option if you plan to invest in gold and hold it till its maturity. They are listed on the exchange and can be purchased through the secondary market.

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Another alternative to investing in the yellow metal could be gold ETF as they have an underlying asset as physical gold and it tracks domestic gold prices. It also has the advantage that one need not worry about storage or purity and can be liquidated anytime since it is listed on the exchange as well. If one does not have a demat account then Gold Savings Funds offered by mutual funds can also be another option.

The right allocation

While these were some of the ways of investing in gold, having an allocation in the precious asset can be beneficial over a long period. Gold also tends to hold its value when currencies across the world depreciate. One can consider having a 10-15 percent allocation in gold in their overall portfolio, and one way to build this is by gradually adding it alongside investments in other asset classes.

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One should try to maintain the allocation throughout the time and not get overexcited by the returns of gold, which might tempt one to invest more than necessary. Similarly, when other asset classes deliver higher returns, there's a risk of reducing gold allocation, as many tend to shift focus during such times.

The writer is Co-Founder of MyWealthGrowth.com, a financial planning firm.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.