Fund houses prefer gold fund of funds over ETF

Our Bureau Mumbai | Updated on March 12, 2018

Simplicity and ease of buying cited as reasons

Gold fund of funds are turning out to be popular both among fund houses and investors. IDBI is the latest fund house about to launch a gold fund of funds. The scheme will invest in the IDBI Gold Exchange Traded Fund.

According to fund houses, gold fund of funds are being favoured over the exchange-traded variety for simplicity and ease of buying. ETFs can be purchased only through stock exchanges and are not available for sale through distributors.

“Buying ETFs through the exchange mechanism is not popular among investors as they find it cumbersome,” said Mr R.S. Srinivas Jain, Senior Vice-President and Chief Marketing Officer of SBI Mutual Fund.

Distribution network

Fund houses prefer to push gold fund of funds which is available for sale through distributors — an easier access point for investors.

Also, investing in gold through the mutual fund route — via distributors — gives investors the opportunity to invest through systematic investment plans (SIPs).

SIPs are increasingly gaining popularity among investors who prefer regular periodic investments. SIP into gold fund of funds means that the investor will only be allotted gold units for the investment amount paid. For instance, an SIP of Rs. 1500 in a gold fund would mean that the investor is only allotted gold worth that amount.

FoF’s advantages

In the case of gold ETF, the investors are required to purchase a minimum of one unit, which is one gram of gold. However, some fund houses do offer half a gram or 0.5 unit.

Analysts reckon that these are not the only reasons persuading fund houses to push gold fund of funds. A gold fund of fund is characterised as a debt fund and charges a high expense ratio as compared to gold ETF. Gold ETFs charge a flat expense ratio of one per cent.

The expense ratio charged by gold fund of funds is slightly higher by 25-50 basis points, which includes the ETF management charges say fund houses.

“The class of people who invest in gold funds are those with a regular income and want to have SIPs into gold funds. They are not concerned about higher management fees because they are usually long-term investors. These funds also provide liquidity in the long-term to the market,” said Mr Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio.

According to industry analysts, the average ticket size into a gold ETF would be about Rs 10,000,while that of an SIP into gold fund of funds is about Rs 2500. The minimum ticket size for an SIP is Rs 1,000.


Published on July 24, 2012

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