With the equity markets tanking, some investors have been shifting focus to commodities such as oil and gold to gain from the rally in these commodities and restrict overall losses. But, with oil already showing signs of weakness and gold cooling off from its highs, will investment in these commodities still hold good?
To help out investors who wish to have the best of both worlds, a new product called AutoInvest that has a portfolio comprising of both gold and equity has been launched. Investments in gold would be made through exchange traded funds (ETFs), which are units of mutual funds that can be traded on stock exchanges. Here gold is held in demat or electronic format, thus cutting down on storage costs and the risk of gold purity etc. There are atleast five gold ETFs listed on the National Stock exchange, but AutoInvest will park money only in Gold ETF.
The portfolio would hold equity either in the form of stocks or a combination of mutual funds. One can invest in AutoInvest via only the systematic plan route, wherein a fixed amount (minimum Rs. 2500) is invested at regular intervals, usually on a monthly basis.
AutoInvest would have seven plans with different combinations of equity and gold investments. Investors, who wish to have a pure gold portfolio, can take the Aggressive Gold Plan, while the ones looking at only equity can take the Conservative Equity option. For those who wish to have mutual funds apart from stocks, the Conservative Equity and Mutual Funds plan can be taken.
The levels of each – equity, mutual funds and gold. – For various options would be in the proportion specified in the table. A person cannot change the proportion, but the research team suggesting the allocation, may change it depending on market conditions. But if you wake up one day to realize that your risk profile is different, you can switch from one option to the other.
Looking at the current market situation, where one would want to limit the downside risk, the Aggressive Gold Moderate Plan looks apt. Under this, 30% of the portfolio would be invested in equity, 50% in diversified mutual funds and 20% in Gold ETFs.
Assume that you had invested Rs. 10,000 in the Aggressive Gold Moderate Plan on January 1, 2008. You have invested Rs. 3000 in equity, Rs. 5000 in diversified mutual funds and Rs. 2000 in gold. Since then the BSE Sensex has fallen by 31.77%, while gold has gained 21.31%. So the Rs. 8000 invested in equity via stocks and mutual funds would have shrunk to Rs. 5458.4 (assuming investments were made in the shares that constitute the BSE Top 30) while gold would have grown to Rs. 2426.2 As a result your overall portfolio would have shrunk to Rs. 7884.6.
However had you invested in 100% equity portfolio, and then your entire Rs. 10,000 would have gone down by 31.77% to Rs. 6823. So the return on gold helped reduce the fall in your portfolio. This shows the benefit of having invested in gold.
When people redeem their investments in Auto Invest- Gold, investors will be offered a 2% discount to those selling Gold ETF units and purchasing physical gold. However, note that banks sell gold coins and bars at a premium that ranges between 5-16%. When the market price of gold was Rs. 1, 28,500 for 100 grams, the 100 gram gold bar sold was priced at Rs. 1, 48,174. So a 2% discount may still fetch you a higher price for the gold bar, which could have come cheaper at a jeweler. Many jewelers too sell gold in the same packing and with the ASSA Y certificate that banks offer.
To help out investors who wish to have the best of both worlds, a new product called AutoInvest that has a portfolio comprising of both gold and equity has been launched. Investments in gold would be made through exchange traded funds (ETFs), which are units of mutual funds that can be traded on stock exchanges. Here gold is held in demat or electronic format, thus cutting down on storage costs and the risk of gold purity etc. There are atleast five gold ETFs listed on the National Stock exchange, but AutoInvest will park money only in Gold ETF.
The portfolio would hold equity either in the form of stocks or a combination of mutual funds. One can invest in AutoInvest via only the systematic plan route, wherein a fixed amount (minimum Rs. 2500) is invested at regular intervals, usually on a monthly basis.
AutoInvest would have seven plans with different combinations of equity and gold investments. Investors, who wish to have a pure gold portfolio, can take the Aggressive Gold Plan, while the ones looking at only equity can take the Conservative Equity option. For those who wish to have mutual funds apart from stocks, the Conservative Equity and Mutual Funds plan can be taken.
The levels of each – equity, mutual funds and gold. – For various options would be in the proportion specified in the table. A person cannot change the proportion, but the research team suggesting the allocation, may change it depending on market conditions. But if you wake up one day to realize that your risk profile is different, you can switch from one option to the other.
Looking at the current market situation, where one would want to limit the downside risk, the Aggressive Gold Moderate Plan looks apt. Under this, 30% of the portfolio would be invested in equity, 50% in diversified mutual funds and 20% in Gold ETFs.
Assume that you had invested Rs. 10,000 in the Aggressive Gold Moderate Plan on January 1, 2008. You have invested Rs. 3000 in equity, Rs. 5000 in diversified mutual funds and Rs. 2000 in gold. Since then the BSE Sensex has fallen by 31.77%, while gold has gained 21.31%. So the Rs. 8000 invested in equity via stocks and mutual funds would have shrunk to Rs. 5458.4 (assuming investments were made in the shares that constitute the BSE Top 30) while gold would have grown to Rs. 2426.2 As a result your overall portfolio would have shrunk to Rs. 7884.6.
However had you invested in 100% equity portfolio, and then your entire Rs. 10,000 would have gone down by 31.77% to Rs. 6823. So the return on gold helped reduce the fall in your portfolio. This shows the benefit of having invested in gold.
When people redeem their investments in Auto Invest- Gold, investors will be offered a 2% discount to those selling Gold ETF units and purchasing physical gold. However, note that banks sell gold coins and bars at a premium that ranges between 5-16%. When the market price of gold was Rs. 1, 28,500 for 100 grams, the 100 gram gold bar sold was priced at Rs. 1, 48,174. So a 2% discount may still fetch you a higher price for the gold bar, which could have come cheaper at a jeweler. Many jewelers too sell gold in the same packing and with the ASSA Y certificate that banks offer.
