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A study done by the World Gold Council (WGC) reveals that allocation to gold below 5% or above 15% can lead to suboptimal risk-weighted returns.
Cafemutual spoke to industry experts to understand how much allocation MFDs should recommend in gold ETFs.
Abhishek Singhal, Head of Passives and Alternate Strategy, Aditya Birla Sun Life MF believes that MFDs should recommend clients to put 5-10% of the total investible corpus in gold ETFs. He believes that gold is an important asset class and offers hedge against risk of volatility from equities and inflation over long term.
Chirag Mehta, CIO, Quantum MF recommends MFDs to allocate 10%-15% of the total assets in gold. He said, “According to the past data, we know when equity isn’t performing so well, gold becomes the ideal asset class as it gives reasonable returns during volatility. I feel that MFDs should give minimum allocation of 10% to gold to get diversification benefits and maximum of 15% to optimize returns. it would be counter-productive beyond 15%.”
Chintan Haria, Principal – Investment Strategy, ICICI Prudential MF recommends a total of 10% to 15% exposure to both gold and silver ETFs. He said, “Evolving geo political scenario in several countries will support the prices of commodities like gold and silver in 2024. Also, the growing inclination of global central banks towards yellow metal over US Treasuries as a means of hedging portfolio risks could lend support to the yellow metal.”
Mahavir Kaswa, Senior Vice President, Research, Passive Funds, Motilal Oswal MF recommends minimum 10% allocation to gold ETFs. Mahavir said, “I feel the markets are going through short-term volatility. This will help gold to move up further. Ideally, investors should always keep 10% of their investment in gold.”
Vikram Dhawan, Head Commodities and Fund Manager, Nippon India MF suggests 5% to 15% allocation to gold ETFs. He says that investors who are skewed towards debt should invest about 5% in gold ETFs and investors who are skewed towards equity can look at 15% allocation to gold ETFs. He said, “Gold is the only commodity that gives good returns even during volatile markets. It helps to diversify portfolio in any market cycle as it very liquid and neutral asset and is overall highly regulated internationally, so it offers more stability to the portfolio at all times.”
