Invest in gold


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Invest in gold

  1. 1. Invest In Gold
  2. 2. <ul><li>“ I have spare money of Rs. 2 lakhs. I was wondering if I should use this to partially prepay my home loan or invest it in Gold and sell the gold after 1 year at a profit and then prepay the home loan?” I was stumped when I received this question on a TV show recently. </li></ul>
  3. 3. <ul><li>I was stumped not because I did not have an opinion on the question but because of the sheer guts and exuberance of the questioner. </li></ul>
  4. 4. <ul><li>After all he was so confident about the annual return from Gold being much higher (of course a positive return) than the sure shot saving of about 12.50% p.a. on his home loan. </li></ul>
  5. 5. <ul><li>A little more questioning clearly elicited the fact that the viewer was your regular IT Professional who was a salaried person and certainly no expert or speculator on Gold. </li></ul>
  6. 6. <ul><li>Clearly Gold has given such superlative returns since the last 4 years or so (see chart) that anybody could be forgiven for being carried away. </li></ul>
  7. 7. <ul><li>However as the chart shows the annual returns for gold even over the last 4 years have been quite volatile </li></ul>
  8. 8. <ul><li>During the last 20 years the annual return from gold as measured by its price on the last working day in March has fluctuated from a high of 37.38% to a low of  –14.39%.  </li></ul>
  9. 9. <ul><li>The current year since March 31, 2011 has given a return of 80% plus so far. But it is anybody’s guess what the 1-year return on gold will be going forward. </li></ul>
  10. 10. <ul><li>The point is not about the possibility of gold continuing its dream run or not over the next year. </li></ul>
  11. 11. <ul><li>The point is should an average investor turn into a gold speculator. A one-time investment in Gold is fraught with the same risks as a one-time investment in equity. </li></ul>
  12. 12. <ul><li>Like any other asset class for individual investors it is best for them to decide the allocation to gold out of their total portfolio and then invest in a systematic investment plan for a fixed amount every month in a gold mutual fund or a Gold ETF. </li></ul>
  13. 13. <ul><li>This considerably reduces the timing risk of the investment decision. In my opinion the allocation to Gold should not exceed 5-10% of your overall assets at any time. </li></ul>
  14. 14. <ul><li>Even if the investor is very bullish on Gold and wants to allocate a higher percentage to gold it should be built by way of a Systematic Investment plan and not as a one-time lump sum investment. </li></ul>
  15. 15. <ul><li>As for Mr IT professional he was advised to not take a chance and go for the sure shot return by way of saving on interest by way of prepayment of the Home loan. </li></ul>
  16. 16. <ul><li>I am not sure how many readers would agree with this advice. Investment in Gold is such an emotional topic, shrouded as it is by our past traditions, that I am sure a lot of you have your own opinion on this subject. I welcome your views on this subject.  </li></ul>
  17. 17. Contact US <ul><li> </li></ul>