The bulls are all securely tied in the pen. The bears are rampaging world markets, not least of all India, hacking ferociously at any attempt by markets to come up from the abyss. Pertinently then, how does one make money in such a volatile market? Every technical support level is being trashed by plunging indices; not an encouraging sign to the potential investor.
Even in such a volatile climate, asset management companies seem to come out with mutual funds that promise the earth, the sky, and everything else in between in a neatly-packed picnic basket. Most of them concentrate on a single sector, the brave few trying the diversified portfolio route.
Though in the long run most equity funds would be a good avenue to invest through, what will happen if volatile conditions remain as the US market moves towards one of its biggest recessions? What should an investor do to still get decent profits?
The one commodity that will retain its luster long-term is gold – that sweet, soft, yellow piece of…well, gold. Although not as significantly and rapidly as the equity markets, gold could be significantly stable throughout the tenure of turbulence.
One domestic firm has recently launched a gold fund that invests in gold equity as well as equity in gold-mining firms. In reality, the fund invests into a gold fund by a parent company in the United States, as in India gold is only traded as a commodity straight up. And there are no gold companies or gold-mining companies listed on our stock exchanges.
A few financial service houses in India have advised their clients not to invest in such avenues fearing that the returns delivered would not be significant. Are their doubts justified?
There is a 35% tax on investments in foreign equity that makes up more than 65% of a fund portfolio. In spite of this, and a 7.5% inflation rate, the gold fund mentioned above gave an absolute return rate of 41.6% - higher than most equity funds – since its inception. This is higher than what most equity oriented funds have achieved in the volatile conditions of the Indian stock markets and even worse conditions of the US stock markets.
The yellow metal will only become dearer as time goes on. Demand will always outstrip supply by a large margin.
A gold-oriented investment in a portfolio would not only buffer the investor’s losses in case of a sudden down swing of the markets, it would also ensure that the investor makes a good amount of profits from his/her investments even if the investment horizon is only up to a year.
Finally, like any good MF, …“Mutual fund investments are subject to market risks, please read offer documents carefully before investing.”
The author is a Relationship Manager working with the Mumbai-based SRE Financial Planners.
May 28th, 2008 at 11:01 am
Great Article !! Goood Going!!
May 28th, 2008 at 2:50 pm
Nice Read!
Truely does give a new meaning to the phrase “All that Glitters is not Gold”.
May 28th, 2008 at 7:29 pm
In my opinion investments in gold can be done purely for the purpose of diversification. One should not bank on gold or for that matter equity and put the full portfolio in any of them. Diversification plays the key role over here. One should not put all his eggs in one basket. One should not shy away from equities because of the swinging markets. One should always look out for companies which are fundamentally strong and be invested for long term. Volatility can harm in short term but in long term one will always gain from it.
May 29th, 2008 at 2:35 pm
nice article!!
Now people can start taking gold funds as one of the venues for their investment
May 30th, 2008 at 2:25 pm
Hey great article! May it be the first of many.
May 30th, 2008 at 3:19 pm
i think it is not true.
i have read some one 200 years ago to uptil now gold has given nagative return adjusted with inflation.
June 2nd, 2008 at 3:00 pm
Great Article!!!!
Gold has always been a strong preformer since the dawn of time & till date the same is valid. As a fact on a average an Indian Family has 5 Tolas of Gold in there house at any point of time, the demand just inflates during celebrations such as Diwali, Marriage, Child Birth etc thus the demand & supply of gold will remain throughout time strong as already seen from the previous 200 years.
June 2nd, 2008 at 4:48 pm
this is a good article which states about an investment avenue which is is lucrative nd not exploited at all….
June 4th, 2008 at 8:58 pm
thats a preety good survey abt gold.But is it really so strong!!!!or else y would the MF companies till now have not considered that issue!!!!!
June 4th, 2008 at 9:09 pm
Mr. Kachwalla, great review
you can safely invest in gold. But take care to keep your jewellery in bank lockers. U can also raise loans on gold for your other portfolio investments. If d Indian economy continues to b liberalised ande unshackled fast, several new options may emerge for investors to invest in gold bars, gold coins, gold funds, gold mining companies and gold options. It’ll also lead to the eventual equalisation of domestic and international prices….
June 5th, 2008 at 1:16 pm
Interesting facts…
Gold as an asset will be an important tool to diversify risk rather than boost returns…It should particularly used to hedge against inflation and the depreciating dollar…
Compared to equities, it is less volatile…Thus, the potential returns are low too…
From 1900 till date, the returns on Gold are as low as 3.60%…
From 1950 till date, the returns are 5.92%…
From 1970 till date, the returns are 9.26%…
From 2000 till date, the returns are 15.35%…
The returns are CAGR…
Thus, its looking good for gold as an investment with the handsome returns in recent times and lesser volatility…But factors contributing are the US recession, Sliding dollar…Demand isn’t rising as it is made out to be…
Both supply and demand have been on the slide since 2006…But, it is the investment aspect which is driving the prices high than the demand/supply relationship…
All in all, Gold should form part of your core portfolio, whether it is by Mutual Funds, ETF’s or physical…Diversification and mitigating risk is the main objective…But remember, past performance cannot determine the future performance of the metal…So do not be greedy as it has given lucrative returns in the last decade or so…
June 19th, 2008 at 10:16 pm
hey it ws a very nice article!m sayin dis cos 4 some1 like me who’s totally alien 2 d subject,it ws stil a smooth read,m shocked hw some ppl didnt understand it!
keep it up re,so dat it can enlighten ppl like us!
November 19th, 2008 at 7:09 pm
I think investment in gold is definitely safe… Though the prices don’t rise overnight, neither do they fall…