For traders, gold mutual funds are a greater choice than sovereign gold bonds

The new subject of Sovereign Gold Bonds (SGBs) will open on 12 July at ₹4,807 per gram. SGBs are a superb product for gold patrons. But for traders, it might not make a lot sense.

“Investors who have a portfolio with an allocation to different asset classes should avoid SGBs. They should look at either gold exchange-traded funds (ETFs) or gold funds,” stated Malhar Majumder, a Kolkata-based mutual fund distributor and associate, Positive Vibes.

According to Majumder, it is simpler for traders to take care of asset allocation utilizing gold mutual funds than SGBs. “Suppose investors want to rebalance portfolios because gold prices have run-up. They want to reduce the asset allocation to the precious metal. In the case of SGBs, they would need to them in the secondary market. The secondary market has its problems – it’s not liquid. Investors could end up selling at a loss. Gold ETFs and gold bonds are more efficient when it comes to portfolio rebalancing,” he stated.

According to him, SGBs work for individuals who need to purchase gold sooner or later for an occasion like youngsters’s weddings. Instead of shopping for bodily gold and storing it in lockers, such people can use SGBs. The product will permit them to purchase “paper” or “electronic” gold at prevailing costs in small portions. On maturity of SGBs, near the occasion, they’ll buy bodily gold.

“Buying small quantities of physical gold for son’s or daughter’s wedding is expensive. If an individual buys jewellery years before the event, the design could be outdated. If someone buys bars or coins, there will be storage costs and making charges. The person will give making charges when buying bars or coins, and also when they are offered in exchange for jewellery,” stated Majumder.

So, if you’re shopping for gold as portfolio investments, stick with mutual funds. Use SGBs as a substitute for bodily gold for a future occasion.

(Do you’ve private finance queries? Send them to mintmoney@livemint.com and get them answered by business specialists)

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