Is it good time to invest in gold ETFs now as prices are rising?

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Updated: Aug 05, 2020 9:07 AM

From an asset-allocation standpoint, it is advisable to have some allocation to gold for diversification benefits at any point in time.

Going ahead, if uncertainty over growth reduces on possible vaccine discovery, the lure for riskier equities would increase, which could weigh on the price of gold.Going ahead, if uncertainty over growth reduces on possible vaccine discovery, the lure for riskier equities would increase, which could weigh on the price of gold.

Is it a good time to invest in gold ETFs now as the prices are rising?
—Neeraj Gupta
Gold plays an important role as a diversifier in a portfolio, due to its less than perfect correlation with other asset classes. It has outperformed equities over longer holding periods such as 10 to 15 years. Gold’s importance as a diversifier has been re-instated even recently, as it delivered 31.85% (S&P GSCI Gold Spot) in the YTD period as of July 23, 2020, compared with a fall of 6.81% in equities (S&P BSE 500) amid the volatility in markets following the outbreak of the COVID-19 pandemic. This was on the back of underperformance of gold vis-à-vis equities & other assets between 2012 to 2019.

From an asset-allocation standpoint, it is advisable to have some allocation to gold for diversification benefits at any point in time. Currently, there is much uncertainty in markets with regards to global growth, with the International Monetary Fund having forecasted a sharp decline in global GDP in 2020, with a partial rebound in 2021. One also needs to consider that valuations play an important role while investing in any asset class. Attractive-ness of gold has reduced following the sharp rally in the past year owing to concerns over growth, US-China trade war and Brexit fears. Going ahead, if uncertainty over growth reduces on possible vaccine discovery, the lure for riskier equities would increase, which could weigh on the price of gold. Given the volatility currently prevalent in markets, having exposure to gold certainly makes sense. You may restrict the allocation to gold to about 5-10% of your overall portfolio.

Can I nominate my son to continue investing in my fund after my death?
—SK Apparasu
A nominee cannot invest in the investor’s account, post the investor’s demise. A nominee can claim the units by completing the necessary formalities; such as completion of the KYC process, proof of death of the unit holder, signature of the nominee duly attested, and such other documents as may be required for transmitting the units in favour of the nominee. After the transfer of the units, your son can hold the investments under his name and may invest further. In case no nomination is made, the units would be transmitted to the account of legal heir(s), depending whether the deceased person has left behind a Will and as per applicable succession law.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com

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