Why investing in gold ETFs is a good option

Gold ETFs will attract more investors ahead: Goldman Sachs

Below is the verbatim transcript of Mashruwala's interview with CNBC-TV18.

Q: Gold prices are now at nine month lows of below Rs 30,000 per 10gm; silver too is sitting at 15 month lows. Would you advise small investors to begin allocating higher investments in these precious metals? And will you advise buying physical gold or via exchange-traded funds (ETFs)?

A: I understand that the prices are falling and when prices fall the panic increases. Ideally it should be on overall asset allocation. Therefore, if one has decided that 75 percent of his allocation would go to equity, 20 percent into debt and 10 percent into gold then keep allocating that 10 percent amount to gold. Therefore, the only thing is an investor will end up buying more gold. This is as far as new investment is concerned.

As far as existing is concerned, the portfolio would have skewed, which means with gold valuations falling, the percentage of gold in portfolio would have gone down. In the last couple of days one has seen some panic and fast fall. Therefore, just hold back but if deviation is more than 10 percent of overall allocation -- so, had it been 10 percent of overall portfolio should be in gold and it has come down to 7-8 percent, it is time to hike it up.

Check out the performance of Gold ETF

Hence, lower levels, one need to hike it up and if there is a panic, wait for sometime. However, it's not a time to stop investing; investor can continue investing; he will increase because he is allocating the amount but it should not be a kneejerk reaction. It is not time to move out because investment was not based on valuation; it was based on overall portfolio allocation.

In terms of buying; should one buy in terms of physical or ETF? If it is from investment perspective obviously ETF because it is easier to hold on to it in demat form and there are tax benefits; one gets long-term benefits after a year and when one do not want to readjust, readjusting gold ETF is psychologically easier than physical gold. So, if one has physical gold and if either prices fall or rise and if one has to sell that then it hurts. Therefore, I always encourage gold ETF from investment perspective.

Q: Is silver an asset to allocate for investment purpose?

A: It is. The only thing is one has to buy silver physically because there is no silver ETF as yet and to that extent people can go slow because beyond a point in time storing becomes an issue. Where to store that and then if one has to rebalance it.

Therefore, purely from asset allocation it is a brilliant asset class, one more that you need to have but when it comes to rebalancing, liquidating while it's a  liquid asset, it is difficult because one will do physically. So, to that extent one can go slow and gold is still all-weather kind of asset and Indians love it so gold should get a priority over silver.