Want Advice on Gold Mutual Fund

[csvraju]

Hi

I am a new investor, and i would like to invest in gold. I have done some research before and came through mutual funds like Exchange Traded Funds and Gold Savings Fund (Through SIP).

Can anyone kindly advice me on which one of the above is preferable.

I know that Mutual Fund are always risky, but can you please tell me which MF is less risky??

 

[vishal412]

A "Gold Savings Fund" (also known as a "Gold Fund") is generally Fund of Fund (FoF) scheme which invests its corpus into an underlying Gold ETFs and benchmarks its performance against the physical prices of gold. Hence by doing so, it attempts to provide returns that closely correspond to the returns of its underlying Gold ETFs.

Even though "gold saving funds" are passively managed, the most wonderful thing about them is that, they provide you the opportunity to invest in gold without really having to worry much about how to store it physically, since the units (your holdings in gold) are allotted in a paper form. Moreover, such a fund also provide you with the convenience of a Systematic Investment Plan (SIP) as well as lump sum investments, but without having you to open a demat account to avail its benefits (which is unlike Gold ETFs).

 

[csvraju]

Hi Vishal,

Thank you for your reply and info on Gold Saving Funds, is it suggestible to invest in Gold Savings Fund rather than Gold ETF's.

 

[AW10]

In my opinion, if you already have dmat account and online trading account with a broker or planning to invest in stocks directly and ready to take the additional annual cost of trading/dmat account, then better to goto etf route. Many brokers offer the facility of SIP in a stock/etf on regular basis just like a mutual fund SIP.

When a gold fund is also investing in etf, then why can't u invest in etf directly. It is no brainer to invest in etf, no research etc is required. Why should you pay additional fund mgmt fee, plus a difference in buy and sell NAV price to them as commission.

Gold is something that moves slowly and there is hardly any outperformance among etf to etf (less than 1% of difference in performance). It is not like selecting best mutual fund where performance depends on fund manager's investment decision. Hence to me, only decision making factor should be the cost of operation and ease of transaction.

Hope this helps.
Happy gold investing

 

[nayachora]

Thanks for your post EW. Can you please help me choose between Gold ETF & EGold offered by National Spot Exchange.

Thanks in advance

 

[asterix24]

Hi,

There are multiple funds encashing the Gold wave. One set of funds (national and international) are based on the companies that are into gold mining and typically is FoF. Do remember that these funds' performance is directly linked to the balance sheets of these mining companies and hence, is no different from any of other funds.

ETFs are MFs but listed on an exchange. They track the daily variation of gold price and typically one Unit signifies the value of 1 gm of 24 carat gold at any point of time. ETFs exhibit both long term variations (over a month or so) as well as intra-day.

E-Gold by NSEL is another feature that is newly opened. In this case, you buy gold from a commodities exchange (Spot Exchange) and store it in a dematerialized form (demat). As per my understanding, when you wish to liquidate, you get physical gold for the units being sold. Currently delivery is limited to Ahmedabad, Mumbai & Delhi and if you are living elsewhere, do look up the options. You can read more at http://www.moneycontrol.com/news/commodities/e-gold-the-new-name-for-gold-_451084.html. I am not sure of additional charges if they are levied for physical form of gold being delivered.

My 2c: Go in ETF for it provides a easy interface to interact and provides ample liquidity and can work as a good hedge from a cash point of view i.e. if you wish to have gold as an investment hedge and don't wish to go in for any ornaments, then ETFs are ideal for you.

If you wish to go in for ornaments, do look up buying physical gold from Mints in your state or from banks whenever there is a dip in gold prices. However, it is difficult to spot a dip in last 3 years

Happy Investing !!

 

[ris]

Correct me if I am wrong as I am considering investing small amounts every month in either gold etf or gold savings fund.

Here I am considering Quantum gold savings fund since it has the minimum expenses after Benchmark gold Bees.

When a gold fund is also investing in etf, then why can't u invest in etf directly. It is no brainer to invest in etf, no research etc is required.

If I am investing very small amounts in buying gold etf through exchanges every month,then I would be paying brokerage every time I buy and sell.So in this scenario I might end up paying more than the mutual fund expenses.

I quote from the Quantum mutual fund website , "The total expenses charged to the Scheme shall not be more than 1.25% of the daily average net asset of the Scheme and underling Scheme i.e. Quantum Gold Fund. For example if expenses charged to Quantum Gold Fund is 1.00% of the daily average net assets, then the expenses charged to the Scheme will be 0.25% of the daily average net assets OR if expenses charged to Quantum Gold Fund is 0.75% of the daily average net assets, then the expenses charged to the Scheme will be 0.50% of the daily average net assets. "

Why should you pay additional fund mgmt fee,

I checked the quantum mutual fund gold savings fund & they mention there won't be any investment management fee.

plus a difference in buy and sell NAV price to them as commission.

AMFI site mentions the same NAV for buy & sell in this case.

My answers in bold.

 

[rvm123]

Gold saving funds will be of a face value of Rs.10/- each and u may buy at the NAV applicable as on the date. But the NAV will be calculated after adjusting its charges. It is a fund of funds. Hence, the incidental expenses in their investments also will reduce the NAV. If u want to invest in small amounts, this may be preferred.

e-gold will normally be offered in a unit of 1 gm of gold. hence the cost will be more as compared to Gold savings funds. But the cost will be directly proportionate with cost of gold in international market. Except 1 e-gold, which is available at 0.5 gm gold, all others are 1 gm denomination.

 

[vishal412]

I checked the quantum mutual fund gold savings fund & they mention there won't be any investment management fee.

Yes, that's the way Quantum manages their funds, they don't charge investors for any investment management fee, and they also don't have any distributors, in market.

So if you want to make buy any fund from Quantum you have to go to their website for buying any mutual fund.

 

[ris]

.......and they also don't have any distributors, in market.

So if you want to make buy any fund from Quantum you have to go to their website for buying any mutual fund.

They have Karvy as their collection centers so you can invest at any of the Karvy offices.