It’s raining gold fund of funds these days, and the latest to throw their hat in the ring is HDFC mutual fund.
I recently reviewed the SBI gold fund, and this is exactly like that except that it is from HDFC, and being from HDFC it will own gold ETFs from HDFC.
I wouldn’t have written about the HDFC gold fund had it not appeared in the Suggest a Topic page, and that’s because all these gold fund of funds are exactly same in nature, and if you change the name then there’s nothing more you need to write about.
So, I’d recommend people who haven’t read the SBI gold fund review to go read that and get a perspective on what’s happening here.
In general, I think a big mistake that a lot of people do is ask the wrong question viz. should I buy the HDFC / SBI or Reliance gold fund or not?
That’s the tail wagging the dog.
The right question (at least in my opinion) is do I want to own gold or not? And if the answer to that is yes – then how do I go about it.
Now, here you have the option of buying physical gold, or buying financial gold. If you decide that you want to buy financial gold then what are the options available to you?
For a long time that used to be limited to a gold ETF or trading gold at the COMEX, which is probably not very well suited to a long term investor, then came along NSEL’s gold and silver series, and finally early this year fund houses got this idea to launch gold fund of funds.
Out of these options what do you choose?
Now when evaluating these options you must keep in mind that a gold mutual fund simply owns gold ETFs from its sponsor family.
I think that must have been a brilliant realization for the fund houses because not only does a fund of fund allow them to boost their gold ETF – it also earns them money while doing it!
That’s because all ETFs charge a fee for their upkeep, and the mutual funds charge a fee on top of that – so not only do they promote their ETF – they also charge a fee while doing that – thank you very much.
At this point, any fund house that has a gold ETF and is NOT launching a gold mutual fund is too far behind the curve in my opinion.
For whatever reasons, people are interested in owning a gold ETF indirectly through a gold mutual fund, and there is absolutely no reason for a fund house to not give people this option.
As far as investors are concerned in my mind the only reasons to invest in a gold fund of fund is when you are buying in small quantities and the commission and demat charges make it expensive for you to buy the gold ETF directly.
Otherwise I think it makes more sense to buy the gold ETF directly, and avoid paying the extra fee for the fund of fund.
The HDFC gold ETF itself is a relative newcomer in the ETF space and is not as liquid as some of the other ETFs so that’s definitely a thing to consider while evaluating this fund of fund, and at present I can’t think of a reason that will make me favor HDFC instead of the other funds.
The NFO started at the 7th October and will end on the 21st October 2011, but doesn’t make any difference and you are better off buying a fund after the NFO period than in it.
That’s it for this review, and if you are interested in gold fund of funds then you should definitely read the other posts I referenced earlier.