In India attachment to gold is sentimental and emotional. For many of us, this yellow metal is top on the shopping list in festivals. The physical gold bought by us is rarely sold in the market due to emotional attachment with it. But if you buy units in gold exchange traded fund listed on stock exchanges, it will be easier to sell them when prices rise.
It is important to allocate a meaningful Component of your investment portfolio to gold. This allocation helps in bringing down the portfolio risk by reducing their standard deviation of the portfolio.
Gold acts as insurance in difficult times when other components of portfolio are not doing well. So, it is a smart idea to buy some gold in your portfolio.
According to experts, 5% to 15% of your portfolio should be in gold. For this, one simple option available is gold ETFs (exchange traded funds). These funds provide ease of transaction, tax efficient nature, safety and small unit such as one or half gram gold.
Very few people know that units of gold can be bought in a systematic manner – say one unit a month, by instructing your equity broker for that. There are automated gold ETF – systematic investment plan (SIP) available with most equity brokers.
So, keep adding gold to your portfolio at regular interval. This would provide a strong protection to your portfolio in times of economic slowdown.


Avoid Too much Gold: Stick to SIPs

SIP means Systematic Investment Plan. Mutual Fund SIP are a means of inculcating savings discipline as well as benefitting from cost averaging in risky assets. While an SIP is an equity asset does not make it risk-free, it does not remain a preferred method of building long-term savings. Some investors may feel that SIPs have not performed over the past five years but this period has been unprecedented for financial markets.
Even if returns are not staggering for a specific period, an SIP helps in reducing risk compared with a lump-sum investment in that asset.

The recent price increase in gold has acted as a hedge against the corresponding rupee weakness. The rise in local gold price is primarily due to the currency, rather than a change in outlook for global gold prices. So, investors should be cautious about being overweight in gold.