Gold losing sheen? HNIs park money in short-term high-yield bonds, credit funds & mid-cap stocks

MUMBAI: When one asset class loses its sheen, typically another alternative asset class gains. So, when gold is losing sheen, short-term high-yield bonds, credit funds and mid-cap stocks seem to be the place where wealthy individuals, or HNIs, park their money.

Gold prices are expected to drop to a low of Rs 23,000 per 10 gm on global cues like interest rate hike by the Federal Reserve and consequently, a stronger US dollar against major currencies.

"HNIs have reduced allocating funds to gold as an investment option as they are wary of the direction and volatility of gold prices,” said Sandeep Nayak, executive director and CEO, Centrum Broking. “Instead, they are shifting the same funds to high yielding bonds (AA- or AA+) and some promising mid-cap funds/stocks."

“In fact, we reduced the weight of gold from 3% of the portfolio to nil in May 2014,” said Nayak.

The wealth management arm of Centrum is not recommending gold as an investment for a risk taking investor. It would review the call depending on the value and attractiveness of gold as an asset class.

High yielding bonds are typically low-rated papers which offer close to 10% rate with two-three year maturities. Under credit funds, a fund manager invests even lower rated papers like A or A (negative) securities, offering additional 25 or 50 basis points higher rate with gross yields at 10.25-10.50%.

“Gold investment used to be 5-10% of HNI portfolios, which has come down to almost nil,” said Ashish Shanker, head of investment advisory at Motilal Oswal Private Wealth Management. “HNIs are rather parking money with credit funds, high yielding bonds, and stocks. HNIs always take a bit higher risk as they aim for higher returns than average.”

In the past one year, investment in gold exchange traded funds has declined 10-15%, according to Siddhartha Khemka, head of research, Centrum Wealth. India gold prices (Gold 995 - Mumbai) have shrunk more than 11% in India.

But, gold fetish for average Indians remains unaffected for consumption purpose as people continue to buy the yellow metal for festivals and marriages, even though it is fast fading as in investment option only.