Why shifting your gold holding to sovereign gold bonds is a smart move


ET Wealth reached out to experts to know how investors can safeguard their finances from the volatility that raged in 2020 and the uncertainty that looms in the horizon. This week’s cover story explains 11 steps that one should take now to improve one’s finances in the New Year.

Here are the smart money moves to make while investing in gold.

Shift gold holdings to SGBs

For Indians, buying gold is a tradition. The asset is never sold except in extreme emergencies and is handed down from generation to generation. However, this is not a good financial planning strategy, especially after the recent rally in gold. The factors that contributed to the rally —US-China trade war, massive stimulus by global central bankers, etc—may not be repeated anytime soon.

Rupee depreciation, another reason why Indians continue to buy gold, also may not happen in 2021. Since it has already rallied in 2020, experts believe that further upside is limited for gold. “Investors should appreciate that gold as an asset class does not provide regular returns but lumpy returns every 3-5 years,” says Dhiraj Relli, MD & CEO, HDFC Securities. The 2020 rally might have taken gold allocation well above the pre-determined levels and therefore, the smart move would be to rebalance. “While booking profit, don’t exit gold fully. Since gold is a good diversification tool, keep it to around 10% of the portfolio,” says Ankur Maheshwari, CEO, Equirus Wealth Management.

Gold bonds are the way to go

Staggering maturity can reduce the price risk in one year.

gold

Shifting your gold holding to sovereign gold bonds (SGBs) is the second smart move. The 2.5% interest is its main attraction. “Earlier, 2.5% interest on gold bonds used to be half of liquid fund returns. With debt rates coming down, it is almost equal to that now,” says Feroze Azeez, Deputy CEO, Anand Rathi Wealth Services. Investors can also shift from gold ETFs to gold bonds because gold ETFs charge 50-80 bps as AMC fee per annum unlike gold bonds. Tax free capital gain on maturity is the third advantage of gold bonds.

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