Investment in paper gold will no longer require investors to have demat and broking accounts. Mutual funds are planning to launch schemes that will collect money directly from investors and buy units in Gold Exchange Traded Funds.
Reliance Mutual Fund and UTI Mutual Fund have applied to the markets regulator, Sebi, to start such a scheme. These will be launched as fund of funds.
Though at a slightly high cost, these schemes take away the hassle of maintaining demat and trading accounts with brokers. "These two factors were the biggest hindrance for gold ETFs," said Devendra Nevgi, ex-chief investment officer of Quantum Asset Management. Nevgi started the gold ETF at the fund house.
"(Currently) systematic savings in gold is difficult and thus the average investor tries to time the market, which is a difficult task. The idea (behind launching this fund) is to marry the benefits of mutual fund investing and exposure to gold as an asset class," said a spokesperson of Reliance Mutual Fund.
Fund houses, including Reliance MF and UTI MF, have seen the corpus of their gold ETFs remain almost stagnant despite the bull run in the yellow metal in the past one year.
Kotak Mutual Fund, for instance, had Rs 50.15 crore (Rs 501.5 million) assets under management in January-end. The net assets have been Rs 51.04 crore (Rs 50.4 million) in the past five months. This despite the fact that gold ETFs have remained the best performing category across all types of funds with 15.31 per cent return in the past one year. S&P CNX Nifty, on the other hand, yielded a mere 1.1 per cent in the period.
According to a fund manager, distributors are not interested in gold ETFs because of a marginal commission. This has led to little investor interest as the product is not pushed, he says.
Investment advisers feel that the two funds, which are set to resolve the problems with ETFs, are risky and slightly expensive.These funds will be actively managed by fund managers. Things such as the cash level maintained by ETFs and fund and tracking errors will eat into the returns of FoFs.