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.

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