Hybrid funds are in fashion now. Performances of such funds have faltered despite a humongous gold rally in the past year
Indiabulls Mutual Fund plans to launch an open-end hybrid scheme—Indiabulls MIP Gold Plus, according to an offer document filed with the Securities and Exchange Bard of India (SEBI). This scheme would join the 18 odd hybrid schemes which have gold as an asset class. The asset allocation of the scheme is similar to that of Religare MIP Plus and Taurus MIP Advantage Fund, both of which were launched in 2010. The scheme would invest up to 25% in equity and equity related instruments and 5%-25% in gold ETFs (Exchange Traded Funds). A major portion (65%-95%) of its assets would be invested in money market and debt instruments.
When it comes to performance, similar funds like Religare MIP Plus and Taurus MIP Advantage have not done too well. In the one-year period ended 10 April 2012, when gold prises rose by 32%, both the funds underperformed their composite benchmark index and returned around 8% and 10% respectively before tax, which makes these funds hardly any better than debt funds where the returns were around 8% in the past year.
Hybrid funds investing in gold seem to be coming back in flavour as since the start of the year there have been three fund houses which have filed offer documents for their multi-asset schemes —Axis Life Plan, SBI EDGE Fund and Taurus Twin Advantage Fund. Moneylife in the past had written extensively on hybrid funds. And most recently we wrote that adding gold to a mutual fund portfolio displays herd instinct (Read: Hybrid Funds: Adding gold did not help).
Where would one place a scheme that divides an investment into different assets? How would an investor decide how much to invest, when he already has money invested in gold ETFs and/or equity schemes. And why should one add unnecessary risk to one’s portfolio by investing in gold. Fund houses concentrate on devising products to gather assets. These schemes are not tax efficient and as a major portion is debt these schemes attract high long-term and short-term capital gains tax.
Additional Scheme Details
Minimum Investment amount: Rs5,000 and in multiple of Rs1,000 thereof
Additional Investment amount: Rs1,000 and in multiple of Rs1,000 thereof
Minimum Instalment for SIP: Rs1,000
Annual scheme recurring expenses: 2.25% p.a. of average daily net assets
Exit load if switched before one year: 1%, and nil after one year
Taxation: Investors would be subject to long-term and short-term tax on capital gains.
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