Thoughts on Reliance Gold Mutual Fund

by Manshu on February 17, 2011

in Mutual Funds

Another post from Suggest a Topic.

Reliance gold mutual fund is a fund of funds, which means it is a mutual fund that invests in other funds. The first thing that should come to your mind when you hear the word – fund of funds is double expenses.

You will have to pay the expenses of the fund first, and then the fund in which the original fund invests indirectly. Because of this you should have some really good reasons to invest in a fund of funds, and in general you should try to avoid them.

I say in general because there are times when you might find a good reason to invest in a fund of funds, and there was one such instance last year – that too with a gold fund of funds.

I had written about Quantum Gold Savings fund last March, which was also a fund of funds, and which would have primarily invested in Quantum gold ETFs.

The interesting thing about it was that the expenses of the mutual fund would be borne by the sponsor, so there would be no double expenses for investors.

My guess is that they did it because in their view people were still getting used to the idea of ETFs, and if they created an instrument in the form of a mutual fund which tracked gold by investing in gold ETFs – they could overcome that fear, and give a boost to their gold ETF as a result of that.

This is of course just a guess – I’ve never spoken to anyone from Quantum, and I really don’t think they will entertain small bloggers like me in idle banter.

Now this gives a possible reason on why Quantum would want to issue such a fund, but why would any knowledgeable investor be interested in investing in such a fund?

Vinod Lalwaney answered the question by saying it will help him create a SIP in gold, which is not an option available while investing in gold ETFs directly.

That made sense at the time given the zero expenses of the Quantum fund, and lack of ETF SIP options, but Reliance gold mutual fund is different as it does charge you expenses, so you will be charged double expenses, and there are now ways in which you can set up a SIP in ETF though they may not be as direct as setting up a SIP in a mutual fund.

In my opinion anyone who plans to invest in gold ETFs and is looking at an amount greater than the value of one unit of Benchmark ETF should go for it, as I’ve stated earlier that it’s the most liquid and low cost gold ETF available at the moment.

That being said, I can certainly see the utility of Reliance Mutual Fund for someone who doesn’t have a Demat account or who has a Demat account but wants to do a SIP in gold ETF with a small sum.

One last thing about the Reliance Gold Mutual fund is that it has an exit load of 2% if you exit the fund within a year, so you will lose 2% of your money if you sell within a year.

Those are my thoughts on this NFO – as always feel free to add your own thoughts, and ask any questions.

{ 11 comments… read them below or add one }

Hemant Beniwal February 17, 2011 at 6:12 pm

Hi Manshu,

I Second your thought.

People are getting mad over this fund which is not right. I have already written similar article on my blog & will also be adding one more today. 🙂

Reply

Manshu February 17, 2011 at 7:06 pm

That’s probably not all that surprising. It has got all the right buzz words associated with it – gold, SIP, NFO – anything I’m missing?

So, are you getting a lot of questions on that? What are people typically inquiring about?

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Chirag February 17, 2011 at 11:43 pm

The best part of the fund is that one can start investing just Rs 100/- in SIP. I think this is one reason why there is a big Hype about this fund.

Reply

Manshu February 18, 2011 at 5:03 am

That well might be the case – 100 rupees to start with sounds very attractive because it is such a low number, and I guess there are a lot of people out there who felt that they were not getting in on the gold game because they had to buy at least a gram of gold.

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P Chakravarty February 18, 2011 at 12:49 am

Thank you for all the views; it surely builds my conviction. However, at the end of the day, this will help me, as an investor, to create wealth by using both the lumpsum and the cost-effective monthly SIP method. Anyone looking for an investment in Mutual Funds should ideally look not at a one-year horizon (and hence the exit load will not affect me), as it is unfair not just to the fund, but to one’s own goals. I believe Gold as an investment avenue is something which has been of interest for hundreds of years, as a long-term wealth-creation tool, whether it was my grandmother or my to-be daughter-in-law.

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Manshu February 18, 2011 at 5:07 am

Good luck to you – I’d only want to add that gold has risen in the past decade or so after the introduction of the first gold ETF in the western world.

For about two decades prior to that gold prices were stagnant at best.

You might be interested in the gold prices chart in this post:

http://www.onemint.com/2010/10/07/my-opinion-on-gold-and-silver/

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devendra February 18, 2011 at 1:02 am

I wanted to invest 7000 per month what should I do?
Go for a SIP or start with fixed deposit.
You surely had posted about investment for beginners earlier,but can you suggest in particular what to do ?

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Manshu February 18, 2011 at 5:04 am

As you might have noticed Devendra – I don’t offer any comment on what an individual ought to do because that depends on the situation of the person, and everyone is unique in that aspect.

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Furqan Qureshi February 18, 2011 at 6:48 am

@devendra
You should invest considering your financial goals and risk profile. If you are looking at protecting your capital and don’t mind low returns then go for FD. However, if you want higher than FD returns than go for Gold SIP.

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Manshu February 18, 2011 at 6:52 am

But how do you know gold will yield more than a fixed deposit in the years to come 🙂 ?

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Furqan Qureshi February 19, 2011 at 7:33 am

Historically, considering inflation, FDs have given lower/negative returns.
Whereas Gold has proved to be a good hedge against inflation.
Please refer the link below for a very well written & illustrated article by Mr Chirag Mehta, Fund Manager @ Quantam Mutual Fund:
http://www.equitymaster.com/outsideview/detail.asp?date=8/2/2010&story=6

Reply

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