Below is the verbatim transcript of Vaid's interview with CNBC-TV18.
Q: Traditionally, small investors who have been absent from the equity space have been relying on gold to beat inflation and one has seen the gains that gold has given in the years gone by specifically in 2011, 2012 etc. Now with Reserve Bank of India (RBI) cracking the whip on sale of gold coins and even exchange-traded funds (ETFs) witnessing a sharp correction after the recent fall in gold prices, what can investors bet on as a hedge to their portfolio?
A: The importance of this question lies in the behaviour of a retail investor. It is usually seen that the retail investor is not trying to generate real rate of return, which is returns above inflation. Most of the time retail investors or individual investor is interested in achieving some of his goals of life or some of his dreams of life.
The number one pertinent goal for which individual investors in India saving for is children education; their objective is over the next seven-ten years they need to provide good education to their children and need to create adequate corpus. However, gold has done very well, in fact lot of them have started buying real estate, which will help them provide for education at the time of that.
Therefore, our suggestion is that gold should not be seen as a hedge for inflation because it is a very volatile commodity, especially in the last two years. It is difficult to predict like that. What they need to focus on is asset allocation; asset allocation between equity, fixed income and gold and in an asset allocation strategy it always is a case if one is diversifying among three asset classes at least two of them work, in a current environment equity and fixed income is one asset class, which is looking at giving decent returns over a period of next three-four years. So, our suggestion will be do not look at gold to hedge inflation, look at overall asset allocation to achieve your goals and look at equity, look at fixed income and look at gold in a combination based on duration of gold.
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