2013 has been tough for gold ETFs and gold fund of funds so far, and it also happens to be the only six or seven month time period when gold funds have been down. This gives us a good opportunity to see if gold funds behave differently from gold ETFs during down periods.
Last year I had done a post on the best performing gold ETFs and gold funds and one of the clear trends in that was that gold ETFs gave slightly better returns than gold mutual funds. This is because gold mutual funds have an added expense layer on top of the expenses that the ETFs have to incur. However, there is no brokerage or transaction cost if you buy a mutual fund as opposed to an ETF and this is where gold funds have an edge on gold ETFs. You can also do a SIP comparatively easier on gold funds, and this is another aspect where gold funds score over gold ETFs.
In the six month period so far the trend of gold ETFs doing better than gold funds has been reversed and I find that gold funds have fallen slightly lesser than gold ETFs. Here is the data from Value Research.Â
| Name | 6 Month Return |
|---|---|
| Â ICICI Prudential Regular Gold Savings | -17.53 |
| Â SBI Gold | -17.61 |
| Â Quantum Gold Savings | -17.9 |
| Â Axis Gold | -18.05 |
| Â HDFC Gold | -18.09 |
| Â ICICI Prudential Gold ETF | -18.2 |
| Â R*Shares Gold ETF | -18.31 |
| Â Canara Robeco Gold Savings Regular | -18.34 |
| Â Birla Sun Life Gold ETF | -18.35 |
| Â Religare Invesco Gold | -18.44 |
| Â Quantum Gold | -18.5 |
| Â Religare Invesco Gold ETF | -18.52 |
| Â Axis Gold ETF | -18.54 |
| Â Goldman Sachs Gold ETF | -18.56 |
| Â Canara Robeco Gold ETF | -18.58 |
| Â IDBI Gold | -18.6 |
| Â UTI Gold ETF | -18.62 |
| Â SBI Gold ETS | -18.64 |
| Â HDFC Gold ETF | -18.65 |
| Â IDBI Gold ETF | -18.66 |
| Â Kotak Gold ETF | -18.67 |
| Â Motilal Oswal MOSt Shares Gold ETF | -18.69 |
| Â Kotak Gold | -18.7 |
| Â Reliance Gold Savings | -18.71 |
| Â Birla Sun Life Gold | -19.05 |
As you can see, generally, gold fund of funds have fared better than gold ETFs, and I think this may be because gold fund of funds have a little bit of extra cash parked in fixed income securities to help with redemptions that gold ETFs do not. I can’t think of any other reason why this could be the case.
When gold fund of funds were first introduced I felt that investing in ETFs directly was much better but as time has gone by I have realized that there is very little difference between the two and if you are a small investor then you are better off with gold fund of funds as you save on transaction charges and SIPs are easy to set up.
Having seen these two products since their launch, I now feel that gold fund of funds have an edge over gold ETFs for most small investors.
Manshu – I do not think this a fair assessment. You are looking at just the 6 month window when gold prices went down. If you went further back, I think we’d see a reverse pattern where ETFs would’ve scored a little higher.
My line of thought is that if you’re buying gold as a hedge mechanism against your equity investments, gold ETFs are the purest form of that hedge.
You bring up a good point on the transaction charges and I think that is worth a separate blogpost – For small investors, do MF investments through the demat route make sense or should we look at the direct route. It a convenience trade off, but is it worth it?
See this for longer comparison:
http://www.onemint.com/2012/11/25/best-indian-gold-fund-in-2012/
And that post should have link to another post which did a comparison in the prior year.
Dear Manshu,
I have a SIP in in a gold savings FoF monthly 5000. I do have a demat & a trading account. My DP charges a brokerage of 0.5% or minimum of 25 rs/ per transaction. So if I buy ET on a monthly basis worth 5000/- my total transaction cost wud be around 30rs/ per month. Which would be more beneficial to me cost wise?? ETF or Gold FoF…
I agree for a small amount FoF is better . But is it same also for the amount tht i m investing??