It is expensive and aimed at risk-averse investors, but would they know the risks inherent in buying gold as investment?
Reliance Gold Savings Fund opens up a new avenue for investing in gold. The Fund seeks to provide returns that closely correspond to returns provided by Reliance Gold Exchange Traded Fund (RGETF) which in turn invests in physical gold. It will essentially invest in Reliance Gold ETF but unlike buyers of gold ETFs, you don't need to have a demat account to buy it. It will provide returns of gold in paper form. The scheme's performance will be benchmarked against the price of physical gold.
What Reliance has essentially done is converted an ETF into a mutual fund product. This means Reliance can also offer it as a Systematic Investment Plan (SIP).
Reliance Gold Savings Fund is pitched as a good option for small investors who want to invest in gold. It has opened the doors for non-demat account holders as it provides the facility to invest through the online medium and through the physical application mode. Those who were not able to invest in gold ETFs since they did not have a demat account can now participate by investing in this Fund.
However, the issue is whether the product is truly beneficial for those whom it is meant for. The gold fund is aimed at those who do not even have a demat account.
Clearly, those who do not even have a demat account don't even know about the risks of equity or are risk-averse enough not to dabble in equity shares. Most investors like them have preferred a safe investment, such as fixed deposits.
When they invest in the Reliance gold mutual fund, would they be aware of the risks of investing in gold?
The price of gold has gone up six times in the last 10 years. Any asset that has gone up so much for so long a time carries a huge risk of a crash. How will a risk-averse investor react to an asset that can crash by 50-60% within a few months?
A second issue with the Fund is its cost structure. Entry load is nil and exit load is 2% if exited within one year; nil after one year. However, since this is a fund of fund (FOF) scheme, there might be ETF expense charges that one needs to pay. As per SEBI guidelines, a fund of fund can either charge 0.75% of total expenses or it can charge a maximum of 2.5% of total expenses including the weighted average total expenses of its underlying schemes, and not more than 0.75% as management fee from FOF investors. Though Reliance gold savings fund will charge 0.75% annually, it will cap the overall cost (FOF + ETF charges) at 1.5%.
Even then, a 1.5% cost is not insignificant.
Among the best-performing fund houses was Reliance, JM continues to be the laggard in the pack
In January, the Indian markets came under a bear attack, when the Sensex and the S&P CNX Nifty fell by 11% each.
However, equity mutual funds on the whole did better than their respective benchmarks.
Out of the 228 equity growth schemes, 118 have outperformed; 82 schemes have underperformed and 26 schemes have just about managed to equal their benchmark returns.
The top-performing three schemes for January 2011 were-JM Core 11, Reliance Natural Resources and Reliance Small Cap. JM Core 11 fetched a return of -4%, while its benchmark was down 11%. Reliance Natural Resources and Reliance Small Cap fetched returns of -5% and -8% ((benchmark return of -10% and -12% respectively).
Among the top performers of January 2011 were nine funds from Reliance Mutual Fund-Equity Advantage, Equity, Reliance Growth, Natural Resources, NRI Equity, Quant Plus, RSF, Small Cap and Reliance Vision. They suffered an average loss of -8% and have beaten their benchmarks by 3%, on an average.
If Reliance was the best fund house, JM's funds continued to destroy investors' wealth, barring one fund, the JM Core 11, which was a top performer for January, in our current analysis. This is not a surprise.
As we pointed out in our article in Moneylife (1 July 2010), JM is indeed the worst fund house by any parameter.
Among the 20 worst-performing schemes over past one month, JM has as many as ten. These include Agri & Infra (-13%), Basic (-15%), Contra (-14%), Emerging Leaders (-16%), Equity (-12%), Hi-Fi (-13%), Large Cap (-11%), Mid Cap (12%), Multi Strategy (-13%), Small & Mid-Cap (-13%).
The others in the bottom 20 were ICICI Prudential Emerging STAR (-13%), Taurus Discovery (-12%), Birla Sun Life India Reforms (-12%), SBI Magnum Multiplier Plus 93 (-12%), Birla Sun Life Mid Cap (-12%), Kotak Midcap (-13%), Principal PNB Long Term Equity (-13%), ICICI Prudential Equity Opportunities (-12%), Sahara Star Value (-13%), HSBC Midcap (-15%), Sundaram Rural India (-14%), HSBC Progressive Themes (-14%), SBI Magnum Sector Umbrella-Emerging Businesses (-14%).
Out of the various schemes in this category from the Tata stable, the only underperformer of the lot was Tata Equity Opportunities Fund (-12% underperformance with respect to its benchmark).
Many NFOs are being planned: foreign funds make a comeback, one more capital protection fund and three new ETFs, of which only one that truly helps you diversify
Mutual funds have been hit by redemptions and lack of new money coming in from new fund offers (NFOs). In almost 18 months, barely a few NFOs have been launched. Now, a rash of prospectuses for NFOs has been filed. Many of them...