What To Do
To build a corpus, buy a coin or bar of gold on your child’s birthday every year
Buy from a reputed jeweller in your city
Avoid buying from banks
Buy gold ETF through a mutual fund broker. You can also use online trading portal of brokers to buy ETF
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Securing your child’s future in gold is an intrinsic part of the Indian tradition, one that has been passed down several generations. While gold may not give you the kicker returns of equity, it is a stable and often a necessary asset for diversification. And, it fits your kids’ future financial requirements. Outlook Money recommends that 2-5 per cent of your portfolio should be in gold. Typically, when a child is born, family and relatives give gifts in gold—coins or jewellery. This forms the base on which you can accumulate the gold part of your portfolio. There are several ways of building on this corpus, provided you are regular and disciplined in your investments. One way is to gift your child a gold coin every year on his birthday. Obviously, you cannot get away from giving him a ‘real’ gift, but you could mark the day on your calendar and buy a coin every year. You can also buy units of gold exchange-traded funds (ETFs) every year.
Usually, the gold section of your portfolio comes into use for your child’s marriage. There would be several requirements for jewellery and gifts during the marriage, and if you have been building a portfolio of gold over time, it will come in handy when you need it the most.
High returns. In the long term, gold earns high returns. The price of one gramme of gold has gone up from Rs 350 in 1999 to Rs 1,416 in 2009. It is also an excellent hedge against inflation. As inflation goes up, market sentiment and equity prices go down, but gold prices rise. Returns are attractive—from 1995 to 2008, gold has given a CAGR of 12.69 per cent. Gold is trading at very high rates at present— Rs 1,390.02 per gramme. But indications are that the prices would go up further. Analysts expect prices to touch Rs 1,760 per gramme this year. In fact, some even predict a high of Rs 2,200 per gramme. If you haven’t bought this year’s supply, then sooner might be better than later.
Exchange value. When it’s time to cash in on your gold, you can convert the coins into jewellery, or merely sell them at the prevailing rate. Gold coins and bars give you the full value. But, if you are converting gold jewellery into updated designs or other forms of gold, you will lose the making and design charges. Also, jewellery with stones will fetch a lower resale value.
