MFs rush to launch gold funds to catch retail investors

Mumbai: Fund houses are in the race to offer gold fund-of-funds in a bid to tap retail investors who do not have a demat account.

After the launch of Reliance Gold Savings Fund, Kotak MF announced the launch of its Kotak Gold Fund which opens for subscription on 4 March, 2011. Now, UTI MF is also said to be in the final stages to launch its UTI Master Gold Fund, according to a person familiar with the development. The fund house had filed its offer document with SEBI in 2009.  The scheme was approved by SEBI but UTI had to put it on hold due to some reasons.

The difference between Reliance Gold Savings Fund and UTI’s Master Gold Fund is that UTI’s gold fund will invest in other ETFs too while Reliance invests solely in its own Reliance Gold ETF.

According to sources, a few other fund houses are already considering to launch such schemes. Among them is Benchmark Mutual Fund which was the first to launch a Gold ETF called Gold BEes in India.“It is beneficial for investors who do not have a demat account. But it has an extra cost. We have also filed an offer document with SEBI to launch a gold fund-of-fund. We are waiting for the approval,” says Rajan Mehta, Executive Director, Benchmark Mutual Fund.

According to sources, SBI MF is also planning to launch a gold fund which will invest in its Gold ETF called ‘SBI GETS’. Presently there are 10 gold ETFs listed on the stock exchanges having assets under management of Rs 3,581 crore. Fund officials are counting on Gold FOFs to help boost the assets under Gold ETFs.

“IFAs were not able to sell gold ETFs post NFO because it had to be bought from a stock exchange broker. Investors were not comfortable with brokers,” says a marketing head of a leading fund house. A fund -of-fund (FOF) typically is a feeder fund which invests in other schemes. A FOF allows investors to do a systematic investment which according to fund officials is a major advantage in attracting retail investors. Investors are not required to have a demat account to invest in a FOF.

However, the cost of such funds tends to be higher due to expenses incurred by both funds, i.e., the feeder fund and the scheme which it invests in. Additionally distributors are also incentivized to sell these schemes which forms a part of its distribution expenses. Fund houses are pitching the cost effectiveness of buying gold funds through physical mode compared to buying through demat mode as a major selling point.

“It’s a good trend. Asset allocation in gold has already started in a big way. Such funds will be popular for the sake of convenience which they provide,” says Vikaas Sachdeva, CEO, Edelweiss Mutual Fund.