Reader Seeks Advice on Funding Second Home Purchase: Liquidate or Pledge Gold?

I am 45, and want to buy a holiday home, or what may be called a second home. I do not have any major financial commitments apart from my two daughters’ education. I have also been investing through Systematic Investment plans (SIPs) for the past two years. Should I liquidate my gold investments to buy the second home, or would it be better to pledge the gold instead?

Sumit Duseja, Co-Founder & CEO, Truemind Capital (Sebi-registered Investment Adviser): Allocating your significant capital to a single asset class is usually not a good idea. In the current uncertain geopolitics, your portfolio should be diversified and balanced across different asset classes like equity, debt, gold, and real estate in a meaningful proportion. Real estate ideally shouldn’t be more than 30% of your overall assets (excluding your residential real estate).

Gold as an asset class is expected to deliver decent long-term returns, but whether it will generate much higher returns than the gold loan (which is available at 8%+) is not a certainty. Also, gold is a volatile asset class and may trigger a margin call by a lender in case of a severe decline in the short term. However, if you want to go ahead with the home purchase, a balanced approach is to consider selling a portion of your gold and taking a home loan.

With gold prices soaring, is the jewellery in my bank locker adequately protected? How to safeguard it? Can it be insured?

Mahavir Chopra Founder, Beshak.org: While bank lockers provide physical security, bank liability in unfortunate situations may not match the actual value of jewellery stored inside. However, gold jewellery can be insured. It is generally covered either through home insurance policies with optional jewellery/valuables cover or through specialised jewellery insurance offerings. Some insurers may also extend coverage to jewellery kept inside bank lockers, subject to policy terms and conditions.

However, the scope of coverage can vary significantly across insurers. For example, some policies may exclude risks such as war or nuclear events, confiscation by authorities, wilful acts, gross negligence, or unexplained losses. Similarly, some policies may allow customers to choose the sum insured freely, while others may impose limits or cover only a percentage of the declared jewellery value.

Before purchasing such cover, carefully evaluate whether the policy covers jewellery only at home or also in bank lockers and during transit; the valuation certificate and documentation requirements; claim conditions, exclusions and deductibles; whether claims are settled on a market value or agreed value basis; and any sub-limits applicable to specific items or categories.

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