Gold’s Rs 1-lakh milestone: What does it signal for portfolio diversification?

Gold’s 30 percent gain in 2024-25 has outpaced Nifty 50’s 18 percent return.

In April, gold prices in India crossed a historic threshold, soaring past Rs 1 lakh per 10 grams, a staggering 30 percent surge from Rs 77,000 a year ago.

This rally, driven by global uncertainties, tariff wars and a weaker US dollar, has reaffirmed gold’s status as a safe-haven asset. For high net-worth individuals (HNIs) and mass affluent investors, this milestone isn’t just a headline—it’s a wake-up call to reassess portfolio diversification.

With gold shining brighter than ever, how are these investors recalibrating their asset allocation, and what does this mean for mutual fund strategies? Let’s dive in.

Gold’s meteoric rise: Why it matters

Gold’s 30 percent gain in 2024-25, outpacing the Nifty 50’s 18 percent return underscores its role as a portfolio diversifier. Unlike equities, which thrive on economic growth, gold shines during uncertainty.

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Geopolitical tensions, the US' tariff hikes and central banks’ gold-buying spree (over 500 tonnes in 2024) have fuelled this bull run. In India, cultural affinity and inflation-hedging qualities make gold a staple, but its recent performance has HNIs and mass affluent investors rethinking its weight in their portfolios.

The diversification edge: Gold’s low correlation

Gold’s allure lies in its low correlation with equities and bonds, making it a buffer against market volatility. During the 2008 financial crisis, gold rose 21 percent while equities tanked. In 2024, as global markets wobbled, gold’s 24 percent climb in dollar terms ($3,230 per ounce) cushioned portfolios. For HNIs, who often hold 30-60 percent in equities, and mass affluent investors with mutual fund-heavy portfolios, a 10-15 percent gold allocation can give good diversification benefits.

HNIs: Strategic shifts in allocation

HNIs, with portfolios often exceeding Rs 5 crore, are recalibrating cautiously. Many are capping gold at 10-15 percent, favouring gold exchange-traded funds (ETFs), sovereign gold bonds (SGBs) and gold funds of funds (FOFs) over physical gold to avoid storage hassles.

SGBs, offering 2.5 percent percent annual interest, are a hit for reasons of tax efficiency. HNIs are also pairing gold with a multi-asset category of mutual funds, which broadly allocate 10-20 percent to gold alongside equities and debt. However, with gold at record highs, some HNIs are opting for systematic investments via gold mutual fund SIPs to avoid lump-sum risks.

Mass affluent: Balancing growth and safety

Mass affluent investors, with Rs 25 lakh to Rs 5 crore in play, are drawn to gold’s safety but prioritise growth. They’re increasing gold allocations to 5-10 percent, often through gold FOFs, which track gold prices without physical ownership.

Also read | Gold price tops Rs 1 lakh level: What’s the best way of investing in the yellow metal now?

These funds, with three-year annualised returns of 19-20 percent as of April 2025, suit investors seeking liquidity and diversification. Yet many are wary of overexposure, balancing gold with equity mutual funds to capture India’s growth story.

Mutual funds: The gold advantage

Gold mutual funds and ETFs are gaining traction for their ease of trading and transparency. In 2024, gold ETF assets under management hit Rs 58,900 crore, up 89 percent year-on-year, despite minor outflows from profit-taking. Funds like SBI Gold Fund allow systematic investment plans (SIPs) as low as Rs 100, democratising access. Multi-asset funds, blending gold, equity and debt, are also popular, offering diversified exposure in one product. For HNIs and mass affluent investors, these funds simplify gold allocation while mitigating volatility.

Risks and warnings

Gold’s glitter comes with caveats. Its 30 percent surge raises fears of a correction, as seen in 2013 when prices fell 30 percent. Gold yields no dividends, relying solely on price appreciation, which can lag equities over decades (gold: 178 percent versus Nifty 50: 185 percent from 2014 to 2024).

Over-allocating beyond 15 percent risks opportunity costs, especially for mass affluent investors chasing equity growth. Experts advise staggered investments via SIPs in gold ETFs or mutual funds to manage volatility.

The way forward

Gold’s Rs 1-lakh milestone signals its enduring role as a diversifier, but moderation is key. HNIs should stick to 10-15 percent in gold, using SGBs or multi-asset funds for efficiency. Mass affluent investors can allocate 5-10 percent, leaning on gold mutual funds for flexibility.  In a world of tariffs and turmoil, gold’s shine offers stability—but it’s not a solo act. Pair it wisely with equities and debt for a resilient portfolio.

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It is important to maintain asset allocation and buying gold at current high prices might compromise future returns. Hence, investors should consider avoiding fresh purchases.

For a few sets of investors who have already invested sizeable allocation in gold, the current uptrend provides an opportunity to consider partial profit-booking in gold, especially if allocation to gold has exceeded its strategic weight in their portfolios.

Staying disciplined with asset allocation is key, and trimming exposure now may help lock in gains while preparing for better rebalancing opportunities ahead.

The author is founder and CEO of Scripbox

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.