If you have not been able to invest in a gold exchange-traded fund (ETF) yet because you do not have a demat account, help is on your way. Mutual fund houses will soon start launching gold fund of funds (FoF) that will invest your money in gold ETFs.
Investing in gold has caught the fancy of many investors of late, thanks to the surging price of the yellow metal over the past year.
At present, there are seven gold ETFs in India. However, to be able to invest in them, you need a demat account as they are listed on the stock exchanges. Most investors, especially who do not like to invest in stock markets, do not have demat account and hesitate in opening one and gold FoFs are meant for them.
Gold FoFs will be made available to the public through usual distribution channels, such as agents. To invest, fill up a form the good old way, write a cheque and give it your agent or fund house.
“It also allows investors to invest systematically through systematic investment plans, which is not possible through ETFs. Else, you get lost in price calls and miss out on opportunities,” says Chirag Mehta, fund manager, Quantum Asset Management Co. Ltd.
Could be costly
The convenience comes at a cost, however. As per the Securities and Exchange Board of India (Sebi), FoFs can charge a maximum of 0.75% a year. This is in addition to the charges of underlying schemes (in this case, gold ETFs) that will eventually be passed on to you.
However, some MFs such as Quantum and Benchmark schemes do not intend to charge annual expenses. Investors will only have to bear the expenses of the underlying ETF in which the FoF will invest.
It remains to be seen what the final structure of gold FoFs would be when they are finally launched.