Best Indian Gold Fund in 2012

by Manshu on November 25, 2012

in Mutual Funds

As we come close to the end of the year and gold has another great year, it’s only natural to do an update on the best gold funds in India.

In the past I’ve called these posts, best gold ETFs but now there are so many fund of funds that I’ve called this year’s post the best Indian gold fund and will include both gold ETFs and fund of funds. There are no gold mutual funds in India perhaps because it is not easy to run a mutual fund with gold as the underlying asset as you would require physical gold sales and purchases virtually every working day.

I have combined gold ETFs and gold mutual funds mainly because they both invest in gold, and theoretically gold ETFs should return higher than gold fund of funds but I’d like to see if there are any gold fund of funds that are doing better than gold ETFs and if that’s the case then it shouldn’t make any difference whether you buy a gold ETF or a gold fund of fund.

I say that gold ETFs should do better than gold funds because gold funds in India invest in gold ETFs of their fund house and have expenses over and above the gold ETFs own expenses so the expenses are charged twice. However, if a fund has low expenses and the fund house is doing a good job managing its funds it is possible that some funds are doing better than even the ETFs.

That being said, here is a table that shows the returns for all of these funds in the last one year. All data from Value Research.

 

S.No.

Fund

ETF (E) or Fund of Funds (F)

1 Year Return

1 SBI GETS E 11.62%
2 Religare Gold ETF E 11.59%
3 Reliance Gold ETF (R*Shares Gold ETF) E 11.51%
4 UTI Gold ETF E 11.50%
5 Quantum Gold ETF E 11.49%
6 HDFC Gold ETF E 11.48%
7 ICICI Prudential Gold ETF E 11.48%
8 Kotak Gold ETF E 11.47%
9 Goldman Sachs Gold ETF E 11.47%
10 IDBI Gold ETF E 11.44%
11 Birla Sun Life Gold ETF E 11.33%
12 Axis Gold ETF E 11.30%
13 Quantum Gold Savings F 10.78%
14 Axis Gold F 10.36%
15 Reliance Gold Savings F 10.33%
16 SBI Gold F 10.33%
17 Kotak Gold F 10.15%
18 ICICI Prudential Regular Gold Savings F 10.02%
19 HDFC Gold F 9.89%
20 Religare Gold F Less than a year old
21 Birla Sun Life Gold F Less than a year old
22 Motilal Oswal Gold ETF E Less than a year old
23 IDBI Gold F Less than a year old
24 Canara Robeco Gold ETF E Less than a year old
25 Canara Robeco Gold Savings F Less than a year old

There are two clear trends that you can discern looking at the table above:

1. All ETFs have performed more or less similarly, and there is very little difference in their returns. If you look at some of the earlier posts on the best gold ETFs even there you will notice that as far as returns are concerned, there are no clear winners.

2. Fund of fund returns are lower than ETF returns because they have an additional layer of cost. However, what these figures don’t show is the transaction cost of ETFs and mutual funds, and that can make a difference to your returns because you could be buying mutual funds for free whereas you will always need to pay the broker for buying ETFs.

Fund of funds also make it easier to set up a SIP for a gold ETF. You can very well do that with an ETF as well, but it won’t be automated and simple to the extent of a mutual fund.

Do gold ETF volumes matter?

In the past I’ve said that since performance of gold ETFs is about the same, you can look at volumes and invest in the ones that have the most liquidity but in the past few years gold funds have grown so much that for retail investors this parameter has really become irrelevant.

Now, I would say it is hard to say which is the best gold ETF or fund of fund and it really depends on what you are most comfortable with. If you are okay with the lower return that fund of funds give in lieu of no transaction costs and convenience of a SIP then go for fund of funds.

If your transaction costs are low trading shares because of quantity or because of the broker you use, then buy gold ETFs.

Whatever you do, I think it’s best to spread your money around and use two or more fund houses instead of just one. If there is a big tracking error any year in any of the funds then spreading your money can help with that but other than that I don’t see any reason why gold ETFs should perform any differently in 2013 than they have done this year or the years before this.

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{ 8 comments… read them below or add one }

PP November 26, 2012 at 9:19 am

How come Benchmark Goldbees is not in the list? How much was its 1 year return?

Reply

Shiv Kukreja November 26, 2012 at 1:16 pm

Benchmark AMC has been bought by Goldman Sachs. So, it is now Goldman Sachs Gold Exchange Traded Scheme. Its 1-year return is 11.47%.

Reply

austere November 26, 2012 at 12:04 pm

benchmark is Goldman.
very interesting to see that the earliest funds off the block (hdfc, goldman/benchmark) are lower down the rankings.

Reply

Manshu November 26, 2012 at 6:18 pm

I hadn’t noticed that but wouldn’t think much of it since they are still quite close and the time period is only the last year.

Reply

Rajesh Banavar January 22, 2013 at 7:47 am

Hi,
There is a proposal where Gold ETF’s can be borrowed and interest is paid. Hence the Gold ETF’s investors gain, will it be the same with Gold MF, such as Kotak Gold MF and others where investment is done by those who do not hold the demat a/c.
Please let us know.
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Manshu January 22, 2013 at 10:12 am

Yeah, gold mfs will get the same benefit since they own gold ETFs in turn.

Reply

Sunand February 24, 2013 at 12:06 am

First of all excellent article.
Can you please explain how and when is the expense ratio charged on the ETF transaction? (For eg. at the time of buying or at the time of selling or any other time.)
Also, is the charge 1% of the quoted price?

Also if one holds the ETF for less than one year, then will the expense ratio be exempted?

Also what is the dividend payout option in Reliance R* Shares Gold ETF?
What is the rate of dividend and is it applicable for investors who invest through exchange?
Thank you in advance.

Reply

Manshu February 25, 2013 at 5:38 am

Thanks Sunand.

These expenses are incurred by the fund and they deduct them periodically by using up the fund’s cash so the effects of these are invisible to the customer as the expenses for exit ratio are. You can’t get them exempted in any way.

There will be no fixed rate of dividend, the dividend will be paid out from time to time as the fund deems fit. Yes, you will get the dividend if you are a unit holder of the dividend plan, and the only way to buy ETFs is through the stock exchange.

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