After Reliance Mutual fund, which launched a gold fund last month, it is the turn of Kotak Mutual Fund to launch a gold savings fund. With this fund, you can invest in gold without having a demat account. The issue is currently open for subscription and closes on March 18.
THE PRODUCT
Kotak Gold Fund is an open-ended fund of funds (FoF) scheme, which is passively managed and will invest primarily in Kotak Gold Exchange Traded Fund. So its returns will mirror the returns of Kotak Gold Exchange traded fund. While there is no entry load, there is an exit load of 2% if you redeem or switch out units on or before the completion of one year from the date of allotment of units, 1% if you switch between six months and one year of allotment and no exit load after one year of allotment.
The minimum amount on application is 5,000. You can also do a SIP for 1,000 per month.
THE CASE FOR GOLD
Financial planners recommend gold as an alternate asset class of investment in a portfolio and recommend investors to have 5-10% of their portfolio in gold. They are reiterating the advice now due to the uncertainties hovering over the world economy and the trouble brewing in the Arab world. Gold is also considered a safe bet and a hedge against inflation by some. It has a very low correlation to other asset classes, making it a handy asset to diversify the overall portfolio.
WHO SHOULD APPLY
Investors who wish to build up their gold portfolio and hold gold as an asset class in their portfolio can apply. Besides this, investors who do not want to go through the trouble of operating a broking account and a demat account, could look at this mode of buying gold via SIPs.
WHY NOT TO APPLY
Being an FoF, the expense ratio here is likely to be higher, compared to an exchange-traded fund. While the expense ratio for the most liquid Benchmark Gold Exchange traded fund is 1%, Kotak Gold fund will have a higher expense ratio of 1.5% per annum. Hence, investors holding a demat account, may find it marginally cheaper to buy gold through the ETF route rather than investing through this fund.
