How have your gold funds fared?

If you were disenchanted with the performance of your gold funds in the first half of 2013 and never gave it another look, it is perhaps time to peep into your portfolio again. Gold funds have regained a good part of the 18% fall they witnessed since the beginning of this calendar until late June and are now sporting an average return of 15% in the last 6 months.

Now, this article is not to suggest that a gold run has begun. Yes, while increased holding of gold by Central banks across the world, to reduce currency related risks, does improve the long-term prospects of gold; globally, there has been a rush out of gold as expectations of tapering of US monetary policy, led to outflow of money from global gold ETFs.

Hence, even as global prices are still down from prices 6 months ago, local gold prices and prices of gold funds have gained, thanks to local demand (as a result of import curbs) and also rupee’s depreciation against the dollar.

That means, a call on gold, based on global prices as well as macro economic situations can be a very dicey one to take for a retail investor.

So we are not talking of the direction of gold here.  I would simply like to highlight the need for investors to keep their SIPs going, when gold prices remain volatile.

See the table below to know the kind of returns gold funds generated in the past year. Specifically, look at the data on 1-year SIP returns versus lump sum returns. Clearly, keeping your SIPs going would have helped deliver positive returns in a period, you would otherwise have written-off as a phase of gold downturn.

If you are interested in investing in gold and are restricting your exposure to 10-15% of your portfolio, a simple approach to gold investing is through SIPs.

Kotak Gold, Quantum Gold Savings and HDFC Gold are some of your fund options with a consistent record. Reliance Gold Savings is also soon set to reopen for investment.

As the festival season nears, watch out for our article on why gold funds make more sense than investing in physical gold.