IDBI Mutual Fund to raise Rs. 1 billion from Gold Fund

In terms of asset allocation, debt and equity should comprise 35% each of your portfolio, while 10%-15% should be allocated to gold and the remaining should be cash for emergency needs, says IDBI MF

July 24, 2012 5:34 IST | India Infoline News Service
IDBI Mutual Fund has launched IDBI Gold Fund—an open-ended fund of funds (FoF) scheme. The Fund offers facility to invest in gold by way of lumpsum investment or accumulation through regular SIP (systematic investment plan). IDBI Gold Fund is the simple way of holding gold. It has 24-carat convenience. There is assured purity of 99.5% and no storage charges.

IDBI Asset Management Ltd—a wholly owned subsidiary of IDBI Bank Ltd—has assets of over Rs. 50 billion plus. “At IDBI AMC, our aim is to provide good investment options to investors,” added Debasish Mallick, MD & Chief Executive Officer, IDBI Asset Management Ltd. Mutual funds allow investors to invest judiciously in various asset classes—equity, debt and gold—for long-term wealth creation. In terms of asset allocation, debt and equity should comprise 35% each of your portfolio, while 10%-15% should be allocated to gold and the remaining should be cash for emergency needs, said Mr Mallick.

Explaining about the Fund, Mr Mallick said, “IDBI Gold Fund will invest predominantly in IDBI Gold Exchange Traded Fund, which tracks the price of gold. We had launched IDBI Gold ETF around six months back—which received good response. Investors can invest in lumpsum or start an SIP in Gold Fund. Normally, SIP is the best investment tool for long-term returns.” The minimum investment in lumpsum is Rs.5,000 and by SIP is Rs.500 per month. The Fund also offers STP (systematic transfer plan) and SWP (systematic withdrawal plan) facilities. Domestic price of gold is the benchmark index.
“IDBI Gold Fund supplements and complements our investments. It supplements our Gold ETF as the investment objective of Gold Fund is to generate returns that correspond closely to the returns generated by IDBI Gold ETF. The Fund will use the collections predominantly to buy physical gold of 99.5% purity (24 carat approx) by investing in units of IDBI Gold ETF. The Fund also complements our investors who could not participate in our Gold ETF which require demat and trading account,” elaborated Mr Mallick.

He explained, “IDBI Gold Fund is transparent and calculates NAV on daily basis. Investors can redeem the units of Gold Fund directly from the fund house—IDBI MF—and can also buy from the fund house. If an investor sells the Gold Fund, the settlement is done in cash and not physical gold. The Fund offers loan facility to investors against security option from IDBI Bank for emergency money.

Explaining the difference between gold ETFs and gold funds, Sarath Sarma, executive director & head-sales, IDBI Asset Management Ltd, said, gold ETFs are transacted on stock exchanges. However, gold funds don’t require trading or demat account. Investors can also hold fractional units with a mere investment of Rs 500 in gold funds which is not possible in gold ETFs.

Physical gold attracts wealth tax, while in case of gold funds investors do not incur any wealth tax. IDBI Gold Fund offers auto SIP facility wherein you provide a one-time standing instruction to debit your bank account towards the payment of SIP transaction. IDBI Mutual Fund looks forward for large number of investments through SIP, said Mr Mallick.

Mr Sarma said, “Gold funds are more transparent and uniform against the prices of gold jewellery which vary from jeweller to jeweller. Then there are purity concerns with the gold jewellery purchased from a jeweller. You do not need to worry about the purity of gold since fund houses hold gold with 99.5% standard bullion purity. Moreover, there is no risk of theft.”

Gold as an asset class is widely accepted among investor community. Gold has generated spectacular return of 18.8% over the last five years. India is the largest consumer of gold. Jewellery has been the most common way of accumulating gold among Indians. But over the past five years, people have shown interest for paper gold such as gold ETFs, gold futures and gold funds, highlighted Mr Sarma.

IDBI Gold Fund is easily accessible to investors. The Fund would be available to investors through distributors and bank branches which include IDBI Bank, Federal Bank and Lakshmi Vilas Bank among others, said Mr Mallick. 

Mr Sarma said, “Besides personal usage, gold works as insurance in the events of crisis and downturn and has usually given good returns. Gold is a prudent investment and is hedge against inflation. Gold adds stability to the entire portfolio of investors. Investors should allocate certain amount of their investments in gold and the best way would be through ETFs or gold funds.”

Over 32% of the global gold demand comes from India. Almost two-third of this demand is from semi-urban and rural sectors and with the rise in income level of these sectors, the demand for the yellow metal is expected to increase.
From FY02 to FY11, gold has outperformed inflation and has given positive inflation adjusted returns for eight times out of the 10 year period, pointed out Mr Sarma.

The new fund offer of IDBI Gold Fund will open for subscription on July 25, 2012 and close on August 08, 2012. The units will be available at par (Rs.10/-) during the NFO and at NAV related prices thereafter. The scheme will re-open for continuous sale and repurchase from August 23, 2012.

“In the NFO period, IDBI MF is planning to mobilise around Rs. 1 billion. In terms of expense ratio, Gold Fund being a fund of funds would include expense charges of the underlying Gold ETF (0.5%) and of Gold Fund (1%). The maximum limit to charge expense ratio is 1.5%. However, we are considering to minimise our expenses and economise our other expenses so that the investors can get maximum return over the long term period,” said Mr Mallick. 


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