THE glitter of gold is prompting asset management companies (AMCs) to weave investment strategies around the yellow metal. Religare Asset Management has sought approvals from capital market regulator Sebi to launch a gold monthly income plan (MIP). The gold MIP, which, according to Religare, is the first of its kind in the country, will allow investors to have exposure in equities and debt instruments, apart from investments in gold exchange-traded funds.
The move to launch a 'gold MIP' (by Religare MF) comes at a time when other fund houses are launching gold-based schemes. Sundaram BNP Paribas, UTI MF, Reliance MF and IDFC are all launching funds that would invest in securities of mining and jewellery companies. Some of these would also act as feeder funds to existing ETFs.
Gold is turning out to be an important asset for wealth managers. A monthly income plan in gold will enable investors to have exposure in three key asset classes,
According to the draft prospectus, Religare Gold MIP would allocate 65-90% of assets in debt and money market instruments with low to medium-risk profile, up to 25% of assets in equity and equity-related instruments and 10-35% in gold ETFs with high-risk profile.
MIPs, normally, are hybrid investment schemes that invest a portion of investment corpus in equities and the balance in debt and money market instruments. MIPs are advised by wealth managers in times of market volatility. It does not yield returns like a plain vanilla equity mutual fund. Average annual return on MIPs are in the range of 20-24% while large cap equity funds returned 75-78% during the period. Gold ETFs have given 38% over the past one year.
According to experts, gold demand rises in times of financial turbulence. The general belief is that, in times of financial strife, investors withdraw their investments from risky assets and invest in physical gold or gold-backed instruments. Moreover, analysts are expecting the dollar to weaken further as the US government will have to float in more dollars to meet stimulus package requirements and arrest inflation.
