Why Indian Portfolios Need More Gold Than the West: A Prudent Case for a 35% Allocation

In global investment circles, gold is often treated as a hedge or a tactical asset, usually limited to 5–10% of a portfolio. However, in the Indian context, that philosophy fails to account for some critical structural, fiscal, and performance-related realities. At Pranamya Financial Services, we frequently recommend a significantly higher allocation—up to 35%—to gold, particularly in the form of Sovereign Gold Bonds (SGBs). Here's why that stance is not just defensible, but also prudent.

1.⁠ ⁠Performance: Gold Has Outperformed NIFTY in the Past 25 Years

While equity markets are widely seen as wealth creators, gold has quietly delivered superior returns over longer periods in India.

Gold CAGR (1999–2024): ~14%

NIFTY CAGR (1999–2024): ~12%

This isn’t a short-term anomaly—it reflects structural currency depreciation, global monetary dynamics, and Indian investor behavior. Gold’s role as a store of value has worked consistently in India's inflationary, INR-depreciating environment.

2.⁠ ⁠SGB Advantage: Tax-Free Capital Gains + Guaranteed Return

SGBs are not just gold proxies—they're a tax-advantaged investment vehicle:

Capital gains are completely tax-free if held till maturity (8 years).

Investors earn an additional 2.5%–2.75% per annum fixed interest from the Government of India.

This is not available in physical gold, ETFs, or gold mutual funds. For a long-term investor, the after-tax yield of SGBs is unmatched, combining the safety of sovereign backing with wealth-compounding potential.

3.⁠ ⁠Risk-Adjusted Returns: Gold Offers Lower Volatility than Equities

Another overlooked fact: Gold, especially in INR terms, exhibits lower standard deviation than NIFTY. That means less drawdown risk. When equity markets correct 20–40%, gold often acts as a natural hedge.

In modern portfolio theory terms, this improves the Sharpe Ratio of a diversified portfolio when gold is given a meaningful allocation.

4.⁠ ⁠Indian Context: Behavior, Currency, and Policy Support

Unlike Western economies:

Indian households have a long cultural and financial affinity for gold.

INR has depreciated ~4–6% annually against the USD, making gold an effective currency hedge.

RBI’s gold reserve strategy and GoI’s support via SGBs further institutionalize gold’s role in wealth preservation.

In essence, gold is not just an investment—it’s a macro hedge uniquely relevant to Indian portfolios.

5.⁠ ⁠Why Not Follow the Western Model?

Blindly following the West’s 5–10% allocation to gold ignores:

Our inflation dynamics

Currency risk

Fiscal incentives (tax-free SGBs)

Historical return data

As advisors, our role is not to mimic, but to contextualize. Herd mentality, especially during equity bull runs, can lead to distorted portfolios. A gold-heavy allocation, backed by data and incentives, is not risk aversion—it’s risk intelligence.

Final Thought: The 35% Rule for Indian Investors

Based on return profiles, taxation, volatility management, and macro relevance, we advocate a 35% strategic allocation to gold—preferably via SGBs—for long-term Indian investors. This acts as:

A return enhancer (outpacing NIFTY over decades)

A tax optimizer (via SGB structure)

A volatility dampener (especially during equity drawdowns)

In a world obsessed with chasing trends, gold offers something rare: stability, safety, and silently compounding value.

Disclosures: This blog is not investment advice. Asset allocation should be based on individual goals, time horizon, and risk tolerance. The 35% allocation is a strategic view, not a one-size-fits-all recommendation.