Gold And Silver Enter Goal-Based Investing Via Life Cycle Funds

Under the Securities and Exchange Board of India’s (SEBI) updated framework, a new category of mutual funds known as life cycle funds has been introduced. As part of this change, gold and silver are also expected to find a place within these funds, hence bringing precious metals into India’s goal-based investing space.

The idea behind allowing such allocations is to make long-term investing simpler for individuals who are saving towards specific financial goals, whether it is for retirement or for a child’s education. But how does the presence of these metals influence the way investors build their portfolios?

How Does The Inclusion Of Gold And Silver Help?

With exposure to gold and silver, investors get another way to diversify their portfolios, which can be particularly useful during volatile market conditions.

The SEBI has prescribed a limit of 0–10% for investments in gold and silver exchange-traded funds (ETFs) under life cycle funds, irrespective of the fund’s maturity.

With a 15.6% average return over the past 20 years, gold has been generally considered a safe haven among investors. Even during stock market volatility and higher inflation, gold prices have either remained stable or gone up, which is why many investors usually turn to gold to reduce overall portfolio risk.

Silver can also add diversification to a portfolio. Apart from being a precious metal from an investment perspective, it also has strong industrial use in sectors such as electronics and solar energy, which can influence its price movements.

What Are Life Cycle Funds And How Do They Work?

Life cycle funds have been introduced with an aim to help investors work towards a specific long-term financial goal. Depending on the objective of the investor, the investment horizon in these funds can range from around 5 years to as long as 30 years.

Life cycle funds allow a certain percentage of investments in different asset categories, such as equities, debt instruments, commodities like gold and silver, and even real estate investment trusts (REITs) or infrastructure investment trusts (InvITs).

These funds follow the “glide path” approach that automatically rebalances portfolios as they move closer to maturity. A larger portion of the portfolio is allocated to equities by fund managers, as they offer better long-term growth potential. The allocation is gradually moved towards debt or other relatively stable assets as the maturity period approaches to help protect the savings built over time.

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What Does This Mean For Investors?

The simplicity of life cycle funds is the biggest attraction for investors. These funds can give them exposure to different asset classes through a single product, instead of having to manage separate investments across equities, debts and commodities.

The addition of gold and silver within the structure can also help portfolios remain more balanced during uncertain market conditions, since precious metals often move differently compared to equities.

As India’s mutual fund industry has been seeing steady growth, products like life cycle funds could make it easier for diversified portfolios to be built in a structured way. If the category gains wider adoption over time, these funds may gradually emerge as another route through which investors approach goal-based investing, without the need for constant supervision.

Source:

Financial Express

Business Standard

Live Mint