Why Gold ETFs are a smart choice for retail investors: Sanjay Bembalkar Recommends 15-25% allocation

In a world marked by geopolitical uncertainties, changing monetary policies, and economic volatility, gold continues to shine as a reliable investment avenue.

In an interview with ETNow Sanjay Bembalkar, Head- Equity at Union Asset Management Company, highlights the strategic importance of gold in an investor's portfolio, particularly through Gold ETFs (Exchange Traded Funds).

In a recent conversation, he explained why retail investors should consider allocating 15-25% of their portfolio to gold for enhanced stability and diversification.

The Rationale Behind Gold ETFs

Union AMC recently launched a Gold ETF Fund of Funds, aimed at providing strategic diversification for investors. According to Bembalkar, gold stands out as a unique asset class due to its scarcity and its negative correlation with traditional asset classes like equities and debt.

This makes gold an effective hedge against market volatility. He emphasized, "Gold has different drivers than what we typically see in efficiency assets like equities and debt. That's why investors can use this asset class not only in the current geopolitical climate but also as a long-term strategic allocation."

Recommended Allocation: 15-25% for Retail Investors

Drawing insights from international research, Bembalkar recommends that retail investors should allocate 15-25% of their portfolio to gold. He noted, "We believe that considering the current situation and India's position in the global macroeconomic scenario, a 15-25% allocation to gold is appropriate." This recommendation is also reflected in Union AMC's multi-asset allocation strategy, where they have assigned a 22% allocation to gold.

Gold ETFs vs. Physical Gold: Why Paper Gold Makes Sense

While physical gold has traditionally been the go-to investment choice for many Indian households, Bembalkar points out several advantages of opting for Gold ETFs or Gold ETF Funds of Funds. These include:

No Emotional Attachment: Unlike physical gold, paper gold investments do not carry emotional value, making it easier for investors to sell when required.

No Purity or Storage Concerns: Investing in Gold ETFs eliminates the hassles associated with the purity and storage of physical gold.

Liquidity and Convenience: Gold ETFs provide greater liquidity and ease of transaction, allowing investors to manage their portfolio more efficiently.

He elaborated, "When we own paper gold through Gold ETFs, there's no emotional attachment, and investors avoid the headaches of purity and storage. This makes it a more practical investment option."

Strategic Diversification and Portfolio Stability

One of the key reasons for recommending Gold ETFs is their role in strategic diversification. Gold has historically shown a negative correlation with equities and debt, thereby providing a stabilizing effect during market downturns.

Bembalkar explained, "Gold is a scarcity asset with different drivers than equities and debt. This unique characteristic makes it a fantastic asset class for diversification, particularly in the current economic environment."

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)