In conversation with Mr. Pratik Dodhia (CEO Alphabet Investments)  on outlook for GOLD and other Financial Planning topics.

Abhay: Hello Pratik. I welcome you as our Guest Expert. I would like to begin with asking you a reader’s question about Gold, along with others.  

Abhay: Gold price has been ranging between Rs 45000 to Rs 48000 for quite some time. What is your outlook for future about gold prices?

Pratik: Gold as an asset class performs well when majority of the countries are facing a recession, or the world is facing major uncertainty (example war like situation or tension between major economies or say a pandemic). Such situations cause for a rush for investors to invest in gold which has enjoyed the status of being a safe haven over the years as it is tangible and a valuable asset. Gold is a natural hedge against the US$ and at times when US$ is declining, gold tends to do well.

Gold also benefits from rising inflation. The rise in the number of infections could be a short to medium term support for the metal.

According to me, the gold prices would remain range bound based on the interest and inflation numbers, provided no major surge in cases are recorded on a global scale. Investors should avoid going overboard and gradually build and maintain a 5% – 10% exposure to gold. It is interesting to note that even after considering todays gold value, the CAGR return of gold over the last 30 years is only 10%.

To conclude let me reiterate that it is better to formulate an asset allocation approach based on your risk profile and future needs.

Abhay: If there is a daughter’s marriage coming up in next 2 to 3 years, would you suggest that the family locks-in the current gold price to secure against any future rise in gold prices! Also, would you advise physical gold, gold funds or Sovereign Gold Bonds?

Pratik: Physical should be avoided as far as possible because of high making charges, storage costs, purity concerns etc. Even though gold funds would be tracking the market prices, there are certain costs like the expense ratio and an exit load attached to it when compared to the SGBs. SGBs offer a lucrative option with an annual interest rate of 2.5% along with the benefit of a sovereign guarantee and tax-free maturity after 8 years. Since the time period is short term in nature, it would be advisable to opt for gold funds as they would offer more liquidity as compared to SGBs.

Abhay: If a family still insists on physical gold, how much gold can be kept in a family without documentary evidence, as per CBDT? If a family needs to keep more gold, then what documentary evidences must be preserved?

Pratik: As per the guidelines, non-documented holdings of gold in a family can be as followed:

• A married woman can hold to the tune of 500g of gold.
• An unmarried woman can hold to the tune of 250g of gold.
• A man can hold to the tune of 100g of gold.

For anything more, there is no upper limit, but tax invoices and bills pertaining to the same should be kept handy. In situations where the same has been availed as inheritance or gift, if there is any source of ownership form the previous owner would be of great help. A gift deed or a will or any legal document mentioning the transfer to you, or your family members will also be helpful.

Abhay: Future is unpredictable, and no one can plan with perfection. According to you, what are the three biggest mistakes that people make in their financial planning?

Pratik: I will keep this extremely crisp.

• Not buying adequate insurance cover and not having an emergency corpus – the lack of these could be detrimental to building your investment corpus as many have witnessed especially in these COVID19 times.
• Investing in a haphazard manner and not linking investment to goal – Goal based investment enables one to better track one’s investment and ensure investments are made in appropriate pockets.
• No estate planning – ensures efficient wealth transfer plan without litigation

Abhay: Considering the rising inflation scare, how much retirement corpus should one plan for? Is it 20x, 30x or 40x (or something else) of annual expenses?

Pratik: There is no fixed number to it. It depends on person to person, as expense patterns and the quantum of the same is dynamic to individual preferences. One may be fine with a 20x of his annual expenses, if the post retirement outgoing is less as compared to pre-retirement and personal inflation basket is less the core CPI and vice versa. However, it is better to be conservative and aim for a 40X retirement corpus but have at least a 30X corpus for a comfortable and option of a more luxurious retirement phase as we need to factor in increase in life expectancy as well.

Abhay: In a family, son’s education is 3 years away. Since he is aspiring for overseas university, the outlays are likely to be substantial. Looking at the current trends in the financial markets, what asset allocation would you advise?

Pratik: As the time frame is short, safety of principal will be of utmost concern. Also, as the interest rates on most fixed income instruments are less than the inflation rate, the real rate on the investments are negative. One could have an allocation towards short term debt mutual funds, hybrid conservative funds, dynamic asset allocation funds and a mix of large cap and global fund (based on the country of education). Global funds will enable to hedge against the currency of the desired country. As investor keeps nearing the goal, investor should systematically shift to safer options to protect the downside.

Abhay: Many thanks Pratik for your expert inputs. I hope this information will be valuable to our readers. We will connect in future again to seek your expert guidance.  

About the Expert Guest

Pratik Dodhia is the Founder and CEO of Alphabet Investment, a wealth management firm catering to NRI’s HNI’s and professionals. Pratik has 2 decades experience. Pratik has been invited to multiple investment forums and webinars relating to NRI’s returning to India, taxation and various investment options. He lives by the philosophy to help one achieve their financial goals. Pratik can be reached at info@alphabet-investment.com

The thoughts presented here solely belong to the Guest Expert. These shouldn’t be construed as advise. Wealthstrategies.in make all diligent effort to check the authenticity of information presented in its articles, but cannot be held accountable in case there is any deviation.