Now there are various financial instruments available with gold as the underlying such as Gold ETFs, gold bonds and Sovereign gold bonds (SGBs) but here we will discuss how gold funds can be a good investment option:
Features of gold funds
Before we get on to detail the features of gold funds, gold funds are largely open ended funds that invest in gold exchange traded units and offer returns that typically correspond gold prices.
- Gold funds invest its corpus in various gold forms including physical gold, gold mining companies.
- Investors through this mode of investment get to invest in pure gold at relatively low cost.
- High liquidity is offered as investors can sell them anytime at market rates.
- Also gold funds are deemed to be a better investment option for investors, better than even Sovereign gold bonds (SGBs). This is when there is a need for rebalancing and one needs to reduce or pare their SGB units which can be sold with difficulty at the exchange because of the low liquidity that is offered on the exchange
- Hence it is very clear now if gold is being added for investment reasons, gold ETFs and gold mutual funds shall be the best option which investors need to go with.
So, here as gold mutual funds shall more or less yield return basis the underlying gold prices, expense ratio can be an important aspect:
Top Gold Funds With Lowest Expense Ratio:
|Gold fund||Expense Ratio||Rating||SIP Annualised 1-year return in %||SIP Annualised 3-year return in %||SIP Annualised 5-year return in %|
|SBI Gold Fund- Direct Plan||0.1%||Value Research 3 Star rated fund||-4.72%||12.98%||12.07%|
|Kotak Gold Fund- Direct Plan|
|0.18%||Value Research 5-Star rated||-4.54%||13.37%||12.5%|
|HDFC Gold Fund-Direct Plan||0.15%||Value Research 4-Star rated||-5.01%||12.84%||11.92%|
|Nippon India Gold Savings fund-Direct Plan||0.1%||Value Research 3-Star rated||-5.06%||12.7%||11.72%|
|ICICI Prudential Regular Gold Savings Fund- Direct Plan||0.09%||Value Research 3-Star rated||-5.83%||12.18%||11.44%|
1. SBI Gold Fund-Direct Plan-Growth:
This is Fund of fund from the SBI Mutual funds with an asset base of Rs. 1129 crore. The expense ratio of the fund is 0.1% is more than the category average of 0.69%. Risk-o-meter classifies the fund to be moderately risky.
Furthermore the fund is not rated by CRISIL. Over the 1-year period, the fund has yielded negative return.
Typically the fund aims to provide returns that correspond to SBI Gold ETFs.
Investors are also allowed the option to invest in these gold funds via the SIP route and SIP can be started for as less as Rs. 500. SIP of Rs. 10000 in 3 years is worth Rs. 4.33 lakh and in 5 years 8.09 lakh. Benchmark of the fund is the gold prices.
2. Kotak Gold Fund- Direct Plan
The direct plan of Kotak Gold fund carries an expense ratio of 0.18% and has an asset size of Rs. 948 crore. The fund has been accorded by a 5 Star rating by Value Research. The scheme aims to provide return that match with the returns of Kotak Gold ETF.
SIP in the fund can be started for as less as Rs. 1000 while for lump sum investment one needs to put in Rs. 5000. Benchmark of the fund is the gold prices.
3. HDFC Gold Fund-Direct Plan:
The fund has an asset under management of over Rs. 1194 crore and carries an expense ratio of 0.15%. The fund typically aims to provide capital gains through investment in HDFC Gold ETFs.
Minimum investment to start a SIP in this HDFC gold fund is for Rs. 500 and also there are charges in relation to exit i.e. an investor exits the investment or sells it units within 180 days then 2% exit load charges shall apply and 1% for redemption between 181 -365 days.
4. ICICI Prudential Regular Gold Savings Fund (FOF) - Direct Plan :
This fund entails a size of Rs. 535 crore and is rated to be 3 Star by Value Research. SIP in the fund can be started for as less as Rs. 100. Further this fund carries the lowest of 0.09%.
Exit load has been fixed at 1 percent for redemption within 15 days. Fund manager of this fund is Mr. Banthia.
SIP of Rs. 10000 monthly started 3 years back is now worth Rs. 4.29 lakh.
5. Nippon India Gold Savings Fund Direct Plan:
Nippon India mutual fund has total assets under management of Rs.1372 crore and expense ratio of the fund is 0.1%. SIP in the fund can be started for as less as Rs. 100 and there is involved an expense ratio of 1% in case the units are redeemed within 15 days of investment.
Mr. Mehul Dama who is a CA and B.Com is the fund manger of the fund.
Why it makes sense to invest in gold funds?
Currently gold prices are broadly moving in a range and as the prices in the international market have shown resilience and is now hovering over $1800 per ounce there is signalled some bullish momentum though as predicted by experts price of gold shall see a correction for some more time before its upmove.
Now, as investors via the gold funds have the option to both diversify as well as hedge their portfolio risk it is a good option for those looking to buy gold from investment perspectives. Nonetheless, it cannot be ignored that investing in gold bonds is relatively expensive than gold ETFs.
Investors are advised caution before investing in the schemes above and should only invest if they are able to bear losses. Greynium Information Technologies, or the author should not be held liable for any losses suffered on account of the decisions based on the above article. Please consult a professional advisor.