Recently,leading mutual fund houses in india like Reliance,Kotak (while some are in que) have launched gold funds.The main idea behind was to provide liquidity to Exchange Traded Funds.In India,only route to invest in Gold etfs is demat account and many of investors are not convinced with this way though Gold have given consistant double digit returns since last ten years.
Gold funds have to bear a lot of criticism from media as well from cerified financial planners in india.Here are some of their opinions? ,,Few points put forward by them are as follows.
1.Taget group for theses funds are who do not have a risk capacity to trade in demat account:? This point by media infact is not true .There are very less investors who have demat accounts,actively trades in shares but do not wish to invest in Gold ETFs.
2.Gold is due for correction : As per media reports,Gold has outperformed in last ten years and due for correction.But they forget that systematic investment facility will add more value in falling market and help investors to buy units at cheaper level.
3.One CFP write on his blog that equity will outperform Gold so better to invest in Equity rather than in Gold.He has forecasted the compounded annual return of 15% in Equity and 8% for Gold for a period of next 10 yr,,,He means that sensex will be more than 75000 in 10 yrs?Its true that investor should have exposure in equity markets ,,but what is the harm in investing gold funds if there is a sufficient exposure in equity.
4.Gold funds are more expensive: Gold funds carry expense ratio of 1.5%.Media and CFPs ?are using the?? heavy words like Dual recurring expenses etc?.but in general cost of maximum of 1.5% is not higher escpecially when there are no other entry loads for scheme.and there are no charges associated with demat account ?Also when banks or jewellers sell gold coins?prices ?are more about 6-10 % than daily gold rates also for jewellery,,jewellery making charges are in the range of 20-30% and with essentially added impurities like copper.Also for Exchange Traded Funds there is requirement of Demat account and delivery brokerages are payable on each buy -sell transcations.
5.As one internet media reports,,Gold will not even beat inflation in next few years.Postal instruments like kisan vikas patra will be more beneficial?
6.Some of the journalists are promoting the schemes of local jewellers but forget that these are unregulated, non transparent and non-economical as they deliver only in the form of Jewellery and its making chares comes to 20-30%.
These all above opinions of CFPs and some of the journalists i come across.
But,there is a larger investor group who is of opinion that Gold and silver have??miles to go? from here,,especially after underperformance in the period of1985-2000.Only need is to invest in combination of systematic and value averaging way.
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