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Gold should form 10-15% of asset allocation: IDBI Mutual

Latha Venkatraman Mumbai | Updated on December 26, 2011

No secular reason why gold prices should decline





Gold should form an important part of asset allocation of every investor as it is a meaningful asset option especially in times of uncertainty, a top official of IDBI Asset Management Ltd said.

“Everyone should have a sizeable amount, at least 10-15 per cent holding in gold as a prudent asset diversification strategy,” Mr Debasish Mallick, Managing Director and Chief Executive Officer, told Business Line.

In long-term financial planning, it is prudent to hold various assets and gold should be one of these, he said.

The fund house is the latest entrant to India's growing gold exchange traded fund market.

Sage haven option

It mobilised Rs 110 crore in the gold ETF new fund offer that it launched during Diwali and has had the highest collection till date, Mr Mallick said.

Gold ETFs in India has seen substantial growth every year as the yellow metal has proved itself as a safe haven investment option.

“Gold ETF is the best buy option instead of physical gold. There is no wealth tax, you can sell anytime,” Mr Prithviraj Kothari, President, Bombay Bullion Association, said. According to him, it is a safe method of holding gold.

While Mr Mallick declined from making any gold price projection, he said, the global macro-economic situation remains uncertain. The yellow metal is seen as a safe haven asset and a hedge against inflation.

Although there has been improvements in the global economic scenario concerns about growth in the US and debt worries in the Euro zone have not eased.

“The search for safe haven asset would continue,” Mr Mallick said adding that there is no secular reason why gold prices should decline.

Fundamental factors support

Fundamental factors supporting gold remain strong — a store of value, hedge against inflation, central banks buying to diversify their reserve portfolio and actual supply tightness.

Mr Mallick said, the response to IDBI Gold ETF in the secondary market has been moderate but has potential for more activity.

“There is some traction for our product in the secondary market. We are not very happy but it is not dismal. We have no control over that market. But we believe our product has a lot more potential to grow,” he said.

According to him, the product has two features that could help it score over others. Its tracking error is at minimum so that the product is closest to gold prices. The second factor is the option of a loan against the product because of the fund house's link with IDBI Bank.

The recent drop in gold prices has not led to huge sales of IDBI Gold ETF, he said.

“In our fund, a large number of investors have invested in this product. The biggest benefit of that is the investor behaviour would be diverse,” Mr Mallick said adding that the fund house is expecting newer investors.

The fund house may look at a possibility of launching a variant which may include investment options in various assets including gold. A Fund of Funds is also another option, he said.

Published on December 26, 2011

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