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In the current market landscape, gold continues to be a popular investment avenue due to its ability to act as a hedge against inflation and market volatility. In 2024, gold continues to demonstrate its value, especially as the global economy grapples with inflation, geopolitical tensions, and market volatility.
With gold's significance growing, two new Gold ETF Fund of Funds (FoFs) have recently hit the market: Groww Gold ETF FoF and Mirae Asset Gold ETF Fund of Fund. These FoFs allow investors to gain exposure to gold without holding physical gold directly, providing a convenient and cost-effective way to diversify their portfolios. But are they worth investing in?
Let’s dive deeper into what these funds offer and whether they should be part of your investment strategy.
[Read: Top 5 Gold Mutual Funds in India]
What is a Gold ETF FoF?
A Gold ETF FoF is an open-ended mutual fund scheme that invests in units of Gold ETFs (Exchange Traded Funds). Unlike Gold ETFs that trade on stock exchanges and require a demat account, a Gold ETF FoF allows investors to participate in gold investments without the need for a demat account.
The main objective of these funds is to provide returns that closely track the performance of physical gold. Since these funds invest in Gold ETFs, their value is directly correlated with the price movements of gold, making them a suitable option for investors seeking exposure to gold as an asset class but who may not want to hold physical gold due to storage, purity, and liquidity concerns.
One of the most significant advantages of a Gold ETF FoF is that it allows investors to gain exposure to gold without requiring a demat account. This makes it accessible to a broader range of investors who might be unfamiliar with or unwilling to open a demat account.
As of second half of 2024, gold prices have remained strong, trading in the range of Rs 70,000 to Rs 75,000 per 10 grams, depending on short-term market conditions. While some analysts predict a correction in gold prices later in the year due to potential interest rate hikes by major central banks, others believe that sustained inflationary pressures and geopolitical risks will keep gold prices elevated.
Several financial institutions, have revised their gold price forecasts for 2024, citing the ongoing challenges facing global markets.
Graph: Gold Prices Have Steadily Climbed Over the Years (Past 10 years data)
Data as of September 30, 2024
MCX spot price of gold used.
Past performance is not indicative of future returns.
(Source: MCX, data collated by PersonalFN Research)
For many investors, physical gold comes with storage and security concerns. Compared to investing in physical gold, Gold ETF FoFs offer a lower cost of entry. There’s no need to invest in large quantities of gold, and investors can start with relatively small amounts.
Gold ETF FoFs offer the same liquidity as other mutual funds. Investors can redeem their units whenever they wish, subject to applicable exit loads, if any. This provides ease of access to funds in case of emergencies.
1. Groww Mutual Fund Launches Groww Gold ETF FoF
It is a relatively new entrant to the Gold ETF FoF market. Groww, known for its user-friendly investment platform, aims to make gold investment easy and accessible for everyday investors through this fund.
Groww Mutual Fund’s Gold ETF FoF is a fund of fund scheme investing in units of Groww Gold ETF. The investment objective of the Scheme is to seek to provide returns that are in line with returns provided by Groww Gold ETF. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved.
Under normal circumstances, Groww Gold ETF FoF will hold an allocation of 95% to 100% in Units of Groww Gold ETF and 0% to 5% in Money market instruments / debt securities, Instruments and/or units of debt/liquid schemes of domestic Mutual Funds.
The scheme aims to invest in units of Groww Gold ETF. Investments made from the net assets of the Scheme would be in accordance with the investment objective of the Scheme and the provisions of the SEBI (MF) Regulations.
As with any gold-related investment, the performance of Groww Gold ETF FoF is closely tied to gold price movements. In a bull market for gold, the fund will likely deliver positive returns. However, in a bear market for gold, the returns will reflect that decline.
Groww Gold ETF FoF will be benchmarked against the Domestic Price of Gold (based on London Bullion Market association (LBMA) gold daily spot fixing price).
Groww Gold ETF FoF will be managed by Mr Wilfred Gonsalves.
Groww Gold ETF FoF is open for subscription from October 16, 2024 to October 30, 2024. The fund will reopen for continuous sale and repurchase within 5 days from the date of allotment.
The minimum subscription amount for Groww Gold ETF FoF is Rs 500/- and in multiples of Re. 1 thereafter.
Groww Gold ETF FoF offers Direct Plan and Regular Plan. Under each plan the fund offers Growth and Income Distribution cum Capital Withdrawal (IDCW) Option.
2. Mirae Asset Mutual Fund Launches Mirae Asset Gold ETF FoF
This is another recent offering in the Gold mutual fund space, providing investors with a hassle-free way to invest in gold through an FoF structure.
Mirae Asset Gold ETF FoF is an open-ended fund of fund scheme investing in units of Mirae Asset Gold ETF. The investment objective of the scheme is to provide long-term capital appreciation from a portfolio investing in units of Mirae Asset Gold ETF. There is no assurance that the investment objective of the Scheme will be achieved.
Under normal circumstances, Mirae Asset Gold ETF FoF will hold an allocation of 95% to 100% in Units of Mirae Asset Gold ETF and 0% to 5% in Money market instruments including Tri Party REPO/ debt securities, Instruments and/or units of debt/liquid schemes of domestic Mutual Funds.
The scheme aims to invest in units of Mirae Asset Gold ETF. Investments made from the net assets of the Scheme would be in accordance with the investment objective of the Scheme and the provisions of the SEBI (MF) Regulations.
Mirae Asset is known for its strong fund management team, and the strategy for this Gold ETF FoF is to leverage their experience in passive investments. Like all gold-related investments, the Mirae Asset Gold ETF Fund of Fund carries risks associated with gold price volatility. Moreover, as a FoF, there are dual layers of expenses that investors should consider, which might eat into returns during periods of low or negative gold price movements.
Mirae Asset Gold ETF FoF will be benchmarked against the Domestic price of physical gold
Mirae Asset Gold ETF FoF will be managed by Mr Ritesh Patel and Mr Akshay Udeshi
Mirae Asset Gold ETF FoF is open for subscription from October 16, 2024 to October 22, 2024. The fund will reopen for continuous sale and repurchase within 5 days from the date of allotment.
The minimum subscription amount for Mirae Asset Gold ETF FoF is Rs 5,000/- and in multiples of Re. 1 thereafter.
Mirae Asset Gold ETF FoF offers Direct Plan and Regular Plan. Under each plan the fund offers Growth and Income Distribution cum Capital Withdrawal (IDCW) Option.