Quantum gold savings fund – Fund of Funds

by Manshu on March 14, 2010

in Mutual Funds

I recently wrote about a fund of funds scheme – HSBC Brazil Equity fund, and today I am going to cover the Quantum gold savings fund, which is another fund of funds scheme that will primarily be invested in the Quantum Gold Fund ETF.

As I have probably stated a gazillion times already – a fund of funds scheme incurs double expenses. Once – of the fund itself, and then of the underlying fund as well.

However, in the case of this fund – the expenses section of the prospectus states that the annual recurring expenses of the scheme will be borne by the AMC and there will be no investment management fee as well.

Here is what it states:

These are the fees and expenses for operating of the Scheme. The annual recurring expenses of the Scheme shall be borne by the AMC. The AMC shall not charge any investment management fees.

This is certainly interesting and a good thing too, however, this fund will primarily be invested in the Quantum gold fund ETF that you can invest in directly, so you need to have really good reasons on why you just don’t go ahead and buy that ETF itself.

I was thinking of a situation where I might want to buy this fund, but couldn’t think of any (especially because this fund will have a minimum of 90% of its assets invested in the Quantum gold fund.).

I’d be interested to hear if you have any reasons to think that investing in this fund of funds scheme instead of the Quantum gold ETF will benefit you.

The fund does have an exit load of 1.5%, if you exit before 1 year of the date of allotment and here is an interesting passage from the prospectus:

The investors of the scheme will bear dual loads i.e. those of the scheme and those of Quantum Gold Fund. Hence, the investor under the scheme may receive lower pre-tax returns than what they could have received if they had invested directly in underlying scheme in the same proportions.

Another thing that caught my eye was that every funds lists down its minimum target amount when it files its prospectus with SEBI. If they receive applications for a sum less than the target amount – they refund the application money to all investors. This fund has a target amount of Rs. 1 lakh, which is one of the lowest targets I have seen.

It would be interesting to see how well this fund is received by the investing public and what impact it has on the underlying fund. I wonder if the volumes will be meaningful enough to make any difference to the Quantum gold savings fund.

{ 10 comments… read them below or add one }

Indian Thoughts March 14, 2010 at 10:43 pm

Plus to me it seems that fund of fund means double fees 🙁

Reply

Manshu March 15, 2010 at 2:51 pm

For this one the prospectus states that they don’t have any fees on top of the fee of the underlying scheme.

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Vinod Lalwaney March 15, 2010 at 5:13 am

My reasons for going for this
– It will Help me SIP onto a ETF.
– ICICI charges me ~ 2.5% brokerage on buy if ETF units, so on a buy+sell it comes to 5%. Inspite of the expenses, i think it is cheaper to go the FOF way, unless can suggest me some other brokerage houses which charge lesser brokerage – The min i have heard is from reliance money which is 1.2% (buy+sell).

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Manshu March 15, 2010 at 2:50 pm

2.5% on commissions! That doesn’t sound correct, I did a review of the charges a little while ago, and for stocks they were significantly lower, and that is what I’d expect on ETFs also.

http://www.onemint.com/2009/12/21/icici-direct-brokerage-options/

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Ajay July 16, 2011 at 10:50 pm

Manshu – 2.5% may be right. ICICIDirect charges 2.5% or 25Rs flat which ever is less for trade less than around 4500Rs (or 3500 Rs for another plan, they have 2 plans called as ISaver and ISomeThingElse)
On current rates of gold that turns out to be 1.2% (Rs25/Rs2100)

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Manshu July 18, 2011 at 3:58 am

Thanks for your comment Ajay – the point of minimum investment didn’t come to my mind, and if its 1.2% for ETFs with a gram of gold, then for Quantum which is roughly half a gram it is going to be 2.5%. Got it.

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LalitC May 5, 2011 at 2:07 pm

Firstly, FoF like Quantum Gold Savings Fund would avoid the brokerage, transaction and other sess and taxes. If you count those indirect expenses, even with .25% combined expenses, Quantum Gold Saving Fund would make sense. Secondly, you have to be active trader to buy ETF on exchanges. This fund allows SIP as little as 500 which is very convenient and disciplined approach. Unless and until you know exact time to buy the Gold ETF, you should believe in discipline of a SIP. Thirdly, Quantum would have less managerial expenses compared to other AMCs. Look at tracking error of Quantum ETF compared to other AMCs – which is one essential thing to look at while investing in EFT.

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CA Anmol Wadhwa May 16, 2011 at 4:23 am

Except the entry load, does the fund have any other charges as well like Maintanence Charges, Insurance Charges etc ?

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Manshu May 17, 2011 at 12:10 pm

Entry load has been banned by SEBI so funds don’t charge entry loads these days. They charge annual recurring expenses which take care of managerial and other expenses. These are normally somewhere between 0.50% to 2.50% for most funds.

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Srikanth Matrubai August 30, 2011 at 10:54 pm

Gold recent sharp rise will see it going periodic price correction which will help SIP investors average their cost.

For someone, who has no exposure to Gold at all, this Fund is an excellent way to get an exposure and set his Asset Allocation right.

Reply

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