Mutual funds (MF) are trying out ways to lure investors into the gold funds. If investors are not willing to go to the exchange to buy gold funds, asset management companies are willing to come to them ? though in a different fashion. They are now launching gold fund-of-funds that invests back into their own exchange traded funds. Quantum MF is among the recent ones to file offer document with Sebi to launch a Gold FOF (Fund-of-Fund), while previously Reliance MF and UTI MF had done so. With Gold ETFs failing to pick up in the country, MFs are finding ways to bypass the hurdle and improve assets under management. As per latest Association of Mutual Funds in India (Amfi) data, Gold ETF was at Rs 1,584 crore as compared to Rs 781 crore a year back.
The funds objective of Quantum Gold FOF will be to provide capital appreciation by predominantly investing in units of an exchange traded fund. FOF invests primarily in other schemes of the same mutual fund or other mutual funds. And usually it charges a higher fee ? say 75 basis points ? in addition to the expense ratio of underlying mutual fund scheme. Some fund houses are willing to absorb the costs to improve penetration. Chirag Mehta, fund manager of Quantum Gold FOF, said, ?This fund will allow investors to invest with systematic investment plans and all the expense of the fund will be borne by us.?
?Despite ETF being traded on the exchange platforms, its reach to the Tier-II and Tier-III cities is very low, so the FOF will help investors invest in gold,? added Mehta. Dhirendra Kumar, CEO of Valueresearch said, ?This is nothing but convenient packaging of the product for the investors. We have seen that assets under management of the gold ETF are not that encouraging. Gold FOF will further provide investors better way to invest rather than directly investing in ETFs.? In fact, gold ETFs hasn?t caught up among investors; it is partly because requirement of a broking account to buy ETFs (and hold in demat form). But with launching of gold FOF, investors can buy a mutual fund from a distributor ?like any other scheme ? without having to transact on the stock exchanges at all.
According to Amfi data, there are currently six gold ETFs in the country which are traded on the exchange.