Investors who have been unable to invest in gold exchange-traded funds (ETFs) due to lack of a demat account or found investment thresholds high can now benefit from the growth in gold prices.
Reliance Mutual Fund and Kotak Mutual Fund have launched gold fund of funds (FoFs) which invest the money collected from investor in gold ETFs, thus, doing away with the need for a demat account for investing in gold ETFs.
"Through these FoFs, you can also invest through systematic investment plans (SIPs). A SIP in gold ETF was not possible," says Hiren Dhakan, associate fund manager, Bonanza Portfolio.
The minimum investment limit in gold ETF is 1 unit, which is equivalent to 1g of gold. At the current price level (around Rs 20,500 per 10g as on 17 March), you will have to invest at least Rs 2,000 in gold ETFs. With the new FoFs, you can invest as low as Rs 1,000.
However, FoFs lead to dual cost-one for the FoF and the other for the underlying ETF. While gold ETFs charge up to 2.5% as annual fees, FoFs charge up to 0.75%. The extra expense could be offset by the saving on the demat charges.