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SBI Mutual Fund has launched SBI Gold Fund, an open-ended Fund of Funds that allows investors to invest either a lumpsum or monthly instalments in gold. In the past six months three fund houses have already launched similar funds that invest in Gold ETFs managed by the respective fund house.
The allure
Investors without a demat account who still wish to add gold to their portfolio can subscribe to this fund. Although the fund has a higher expenses ratio than Gold ETFs, it allows investors to accumulate units without any physical intervention. With an ECS mandate they can systematically accumulate units, towards goals such as marriage or simply as an investment. Gold Fund of Funds also allow investors to avoid the wide swings in Gold ETF prices intra-day. Gold fund investors can buy units at NAV, which may not be possible through the market route. You can buy units for as little as Rs 100 per month.
The SBI Gold Fund states in the offer document that it will charge 0.75 per cent as expense, subject to limit of 1.5 per cent. The expense ratio of the SBI GETs is above one per cent. This implies that the SBI Gold Fund investor's additional outgo on account of expenses will be close to 0.5 per cent. Investors buying Gold ETFs will have to shell out brokerage charge of 0.3-0.5 per cent to the broker. Therefore, expenses will only be marginally higher for Gold Fund investors.
Disadvantages
Investors who own a demat account and are able to buys units of Gold ETFs can avoid investment in Gold Fund. Although the gold funds have a short track record their returns are lower than underlying Gold ETF funds this probably due to its track error. While Gold Funds will only allow purchase of units at pre-set dates, Gold ETF investors have freedom to buy units when prices fall, based on market conditions. However, the caveat in ETF is that market prices at times higher than NAV of the fund. To hedge the volatility in the price investors can go with Gold ETFs with higher trading volumes and large asset bases.
Features
SBI's Gold Fund will invest 95-100 per cent of the assets in SBI GETS and 0-5 per cent in money market securities or liquid schemes. The minimum lump sum investment is Rs 5,000. Under the SIP, investors can invest any sum ranging from Rs 100 per month for 60 months to Rs 1,500 per quarter for four quarters in a year. The scheme will charge expenses of 0.75 per cent of the average weekly assets. The investors in the scheme will be charged a maximum of 1.5 per cent of the daily or average weekly net assets.
The scheme will not charge any entry load, however there will be an exit load of one per cent if investor exits one year from the date of allotment.
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