How much gold to hold in portfolio? Experts break down allocation strategy

In a conversation about investing in gold, the financial experts explained how Indian investors should think regarding gold allocation, the introduction of new digital gold products, and the importance of newer regulated securities like the Electronic Gold Receipts (EGR), along with existing methods such as Gold ETFs and diversified investment allocation.

The discussion took place amidst the recent plea made by Prime Minister Narendra Modi to decrease dependency on physical gold and not buy any gold jewellery for a year.

In a conversation with Zee Business, Vikas Puri, Senior Partner at Complete Circle Capital and Nisha Sanghavi, Certified Financial Planner, shared their key insights on gold investment and allocation strategy.

How much gold should you hold in your portfolio?

Experts emphasised that gold should remain a limited allocation within a diversified portfolio, rather than becoming a dominant asset.

Sanghavi stated that Indian households are traditionally “gold-heavy” due to cultural buying patterns linked to weddings and festivals, but warned that investors should maintain discipline.

She recommended that gold exposure should ideally not exceed 10–15 per cent of a total investment portfolio, noting that while gold acts as an inflation hedge and diversification tool, excessive allocation can reduce long-term portfolio efficiency.

Why gold remains important in portfolios?

Experts agreed that gold continues to serve two key roles:

• Protection against inflation
• Portfolio diversification during market volatility

However, they also stressed that investors should not treat gold as a primary growth asset compared to equities.

Physical gold vs Digital gold: Shift in investor behaviour

Puri explained how India’s traditional method of buying gold—through jewellery, coins, or bars from jewellery stores—is gradually being replaced by digital and regulated investment formats.

He also mentioned that previously, investors did not have many choices and were largely relying on physical gold buying, whereas the market has now progressed a lot due to:

• Gold Exchange-Traded Funds (Gold ETFs)
• Digital gold
• Governments' instruments such as Sovereign Gold Bonds (SGBs)
• Newly introduced Electronic Gold Receipts (EGRs)

What are the advantages of digital gold investing?

As per Puri, digital gold solutions help overcome several hurdles associated with physical gold ownership.

Puri stated that the following were some of the advantages:

1) Convenience in owning

Investors can buy gold in very small amounts without visiting jewellery stores, avoiding the discomfort often associated with small-value physical purchases.

2) Low-ticket investment

The investor may consider making new investments, starting with a very small amount of funds in digital assets, such as even partial investments in ETFs.

3) No concerns regarding purity

Unlike in the physical form of jewellery, where purity could pose an issue, digital gold is consistent in its quality.

4) No storage burden

Investors do not have to incur the costs of lockers, the storage and the associated security risk of physical gold at home.

5) Reduced trading hassles

Buying and selling is easier and more straightforward than in the case of physical gold, where liquidation might prove difficult.

6) Higher liquidity

Investors can sell fractional units easily, unlike physical gold, where partial liquidation is not possible.

Gold ETFs: A widely used entry point

Gold ETFs were described as one of the most established and accessible digital gold instruments.

Sanghavi said Gold ETFs have long served as a starting point for Indian investors entering digital gold investing, especially because they can be purchased in small quantities and held in demat accounts.

She added that she herself began investing in Gold ETFs early in her career, using small portions of her salary to gradually build exposure over time, without needing physical storage or visiting jewellery stores.

Digital gold evolution: From ETFs to SGBs to EGRs

Experts explained the progression of gold investment instruments in India:

1) Physical gold (traditional jewellery and coins)

2)Gold ETFs (first step into digital investing)

3) Sovereign Gold Bonds (government-backed, tax-efficient instrument with lock-in benefits)

4) Electronic Gold Receipts (latest SEBI-regulated product)

EGRs: A new regulated gold investment framework

A major focus of the discussion was Electronic Gold Receipts (EGRs), recently introduced in the Indian market. As mentioned by Puri, EGRs are dematerialised gold-backed securities traded on an exchange such as the National Stock Exchange of India.

He detailed the structure of the system:

• The depositors (regulated entities approved by the Securities and Exchange Board of India) deposit physical gold in secure vaults
• Depositors can be banks, bullion merchants, refiners, or even institutional investors
• Against this vaulted gold, EGRs are issued
• These receipts can be traded on the exchanges, similar to shares

He further explained that EGRs are issued in standardised denominations such as 1 gram, 10 grams, and 100 grams, having a purity level of 995 or 999 fineness levels.

EGR vs Gold ETFs: Key structural difference

Puri highlighted an important structural difference between ETFs and EGRs:

• For Gold ETFs, the investors subscribe for fund units, which the fund managers subsequently purchase the underlying metal
• For EGRs, the physical gold is first deposited in vaults, and then EGRs are issued against the yellow metal

The inverse model, according to him, made the instrument more akin to direct ownership of the vaulted gold.

Physical delivery option: A key advantage of EGRs

One of the most significant advantages of EGRs, according to experts, is the ability to convert digital holdings into physical gold.

Puri explained that investors can, after holding EGRs for a period, opt for physical delivery of gold from authorised vaults or through approved jewellers.

This feature fills a long-standing gap in Gold ETFs, where investors typically only receive cash equivalent on exit rather than physical gold.

He added that in physical delivery cases, investors may only need to pay minimal GST-related charges.

Multi-asset allocation funds: A simpler alternative

The discussion also covered multi-asset allocation funds as an alternative approach.

Sanghavi explained that these funds invest across multiple asset classes, including:

• Equity
• Debt
• Arbitrage strategies
• Gold and silver
• In some cases, global equities

She said that for investors who prefer a single-fund solution without active timing decisions, multi-asset funds can be an effective option because fund managers dynamically rebalance allocations based on market conditions.

However, she cautioned that investors seeking precise gold allocation targets (eg, 10–15 per cent) may not achieve exact exposure, as gold is only one component within a broader portfolio.

Puri added that during strong gold rallies, fund managers often increase or decrease gold exposure dynamically, which can benefit returns but may not align with strict allocation discipline.

Key limitation of multi-asset funds

Experts also pointed out a limitation:

Because multi-asset funds include equity and debt alongside gold, the exact gold allocation at the portfolio level may get diluted.

Therefore, investors aiming for pure gold exposure may still prefer:

• Gold ETFs
• EGRs
• Or direct gold-linked instruments

Key takeaways for gold investors

Experts reiterated that gold should be treated as a supporting asset rather than a primary investment driver.

They emphasised:

• Maintaining allocation discipline of 10 to 15 per cent
• Utilising regulated instruments such as Gold ETFs and EGRs
• Considering multi-asset investments for convenience of portfolio, but recognising dilution of allocations
• Aligning gold investments with financial objectives and tolerance for risks