8-10% of one’s portfolio should be allocated to precious metals- Tapan Patel, Tata AMC

8-10% of one’s portfolio should be allocated to precious metals: Tapan Patel, Tata AMC

Tata Asset Management has announced the launch of 4 NFOs — 2 Exchange Traded Funds (ETFs) and 2 Fund of Funds (FOF). These funds will provide investors an opportunity to take exposure to gold and silver, respectively, as an asset class with low transaction costs, high liquidity and low expense ratio.

On this occasion, Sanjeev Sinha of FinancialExpress.Com caught up with Tapan Patel, Fund Manager-Commodities, Tata Asset Management, for his views on whether an investor should include gold and silver ETFs in his investment portfolio, and how much of one’s portfolio should be invested in precious metals? Excerpts:

Gold and Silver ETF units represent physical metals in demat form which can be easily traded on an exchange platform during the trading hours of ETF. An investor may reap the benefits of value appreciation, asset diversification and high liquidity with ease of investment at minimal cost. Gold and Silver ETFs are tightly regulated investment instruments. Hence they are considered as one of the safest investment instruments against physical holding.

Also Read: Gold Prices Are Rising: Should you buy now or wait?

What is your outlook on gold and silver prices?

Gold prices have been on a stellar run recently with domestic gold prices hitting all-time highs in the month of December 2023, rallying nearly 17% for CYTD. Gold prices may remain elevated over the medium term considering global macros and geopolitical factors. The ease in inflation numbers, weakness in the job market and geopolitical risks have boosted market sentiments towards sooner interest rate cuts. Silver prices have capped gains compared to gold due to lower demand from the industries. Silver prices may gain momentum with gradual economic recovery from China and Euro Zone industrial activity. Silver prices may remain elevated over the longer term along with support from global macro factors. The weaker dollar and eased US bond yields may remain supportive for both gold and silver prices over the medium term.

Will the demand for gold and silver keep increasing? How is this demand correlated with the economic growth of a country?

Yes, considering investment and jewelry demand stagnant, the demand for gold and silver has increased from technology, medical and industrial segments in recent years. The mine supply for both the precious metals is limited while usage has widened across the segments. The demand for gold and silver as a haven asset is generally negatively co-related with economic growth. However, we have also witnessed a rise in investment demand and industrial demand with increased per capita income during the times of economic growth.

What percentage of your investment portfolio should you devote to precious metals like gold and silver?

Gold and silver prices have witnessed multiple bull cycles with shortened period in the last 20 years with the rise in geopolitical and trade policy factors. An investor may look for minimum 8-10% allocation to gold and silver to mitigate the uncertain risk. However, the percentage may differ from person to person considering his or her risk appetite, investment style, investment strategy, etc.

What are the investment trends in India regarding gold and silver ETFs?

Gold ETFs have witnessed steady growth in inflows with increased market volatility and geopolitical uncertainty. As per data furnished by AMFI, the net asset under management has reached to Rs 26995 crore in November 2023 while the August month reported the highest inflows in the last 17 months. Silver ETFs are getting gradual investors’ traction within two years of launch in India.

One can invest in Tata Gold ETF with per unit available at Rs 6. Can you explain the merits of such facility both from the AMC perspective and from the investor’s standpoint?

Price of per unit of Tata Gold Exchange Traded Fund (ETF) shall be approximately equal to the price of 1 milligram of physical gold on the date of allotment for an investor. The AMC aims to provide a gold investment instrument which is affordable to every single investor and new young investors. The investors may get the units at a lower price and hence make them accessible anytime as per the income availability for the investment. The lower price may fetch good inflows / volumes which may result in high liquidity in the product that could be beneficial to both the AMC and investors.

Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.