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Gold reduces portfolio risk and acts as a hedge against inflation

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Akshaya Tritiya means infinite, immeasurable, endless – something that never diminishes. It is believed that whatever is started on this day will be successful and bring prosperity. So the belief is if you invest in gold on this day, it will multiply continually. While earlier this festival was celebrated by fewer people, today Akshaya Tritiya is observed across the country by different faiths.


The highest sales of gold and silver across the country take place on Dhanteras and Akshaya Tritiya. Traditionally, people buy jewelry but the last few years have seen increasing interest in gold coins, gold bars and even investments in e-gold and exchange traded funds (ETFs). Investment in gold via ETFs, whose units are backed by physical gold, has been an increasing trend and people even open new demat and trading accounts with brokers on this day to add gold to their portfolio via this route.

 


The heightened popularity of gold ETF was reflected by last year's turnover in trades in ETFs on the stock exchanges on Akshaya Tritiya, which was a little over Rs 600 crore. This year, it is expected to cross Rs 1,000 crore. Similarly, systematic investment plans (SIPs) in gold using ETFs are also gaining in popularity. There are currently about a dozen asset management companies that offer investments in gold via ETFs.


In addition to ETFs, there are several interesting ways to invest in gold. If you do not have a demat account, you can easily buy gold mutual fund units. If you want the flexibility to convert gold units in to physical gold or keep them in demat form as long as you wish, then buying via National Spot Exchange's E-Gold platform is the best way. And if you want leverage, then the commodity exchanges are the most suitable ones. Several companies also offer gold accumulation schemes which are effective vehicles for forced gold accrual.

While Alan Greenspan once said that "Gold still represents the ultimate form of payment in the world", it is also the definitive symbol of wealth and prosperity in India. And we buy gold on auspicious days to have continuing good fortune.


On an average, a little less than 2 tonnes of gold is imported into India every day, but the sales on Akshaya Tritiya this year is expected to be more than 20 tonnes. While this will be 20% more than the previous year, it is less than half the gold bought on Akshaya Tritiya day in 2008. It is also possible that if prices remain weak, demand may exceed 25 tonnes. And this does not include ETFs. This is also the reason why jewellers as well as stock and commodity market intermediaries look forward to this day and frequently have specific marketing campaigns tailored around Akshaya Tritiya. Due to the religious genesis, coins with impressions of gods and goddesses are most popular. Besides, the World Gold Council also focuses on this event and it is a major milestone on their marketing calendar.


So, should you buy gold this Akshaya Tritiya? The unambiguous answer is yes and it not just because the prices have fallen to relatively affordable levels or because they may rise again. The real reason to buy gold should be to ensure scientific asset allocation to reduce risk and volatility in your investment portfolio. It is not just an investment but also a hedge against inflation and turmoil, apart from being an effective financial security which is highly liquid.

So go ahead, buy gold today and make it part of your investment basket – there is a 5,000 year history to back your decision.

Happy Investing!!

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