MF Schemes with Ex­po­sure to Gold may be a Good Bet

Ex­perts ad­vise con­ser­va­tive in­vestors to opt for such schemes as it will save them from the has­sles of re­bal­anc­ing port­fo­lio fre­quently in the cur­rent mar­ket sce­nario, says

The Economic Times - - Front Page -

Most fi­nan­cial ex­perts don’t rec­om­mend in­vest­ing in gold these days. How­ever, some of them are sug­gest­ing mu­tual fund schemes that in­vest in gold, along with other as­set classes like eq­uity and debt, to their clients. It is strange that de­spite its mod­est per­for­mance last year, no­body is bullish on the yel­low metal. Then why do they ad­vise in­vest­ing in schemes with ex­po­sure to gold?

“Con­ser­va­tive in­vestors should look at these funds as they of­fer mod­er­ate ex­po­sure to eq­uity and gold and save the in­vestors from the has­sles of re­bal­anc­ing the port­fo­lio from time to time,” says Su­joy Ku­mar Das, head of fixed in­come, Reli­gare In­vesco Mu­tual Fund. Nikhil Kothari, chief fi­nan­cial plan­ner, Etica Wealth Man­age­ment, also be­lieves that it makes sense to in­vest in these funds now. “Es­pe­cially at a time, when eq­uity mar­kets are hit­ting new peaks, one should avoid tim­ing the mar­ket and con­sider in­vest­ing in an as­set al­lo­ca­tion fund that has an ex­po­sure across as­set classes and helps re­bal­anc­ing from time to time,” says Kothari.

How­ever, the per­for­mance of these funds in the last three years re­veals that their re­turns are in line with fixed de­posit re­turns. “Eq­ui­ties and gold did not do well in the last three years and that has im­pacted the per­for­mance,” ex­plains Das. While Nifty gave 8.63% re­turns, gold reg­is­tered a 7% ap­pre­ci­a­tion in the last three years. How­ever, many ex­perts feel that these funds may post bet­ter re­turns in the next few months due to the buoy­ancy in the stock mar­ket. But, they are quick to point out that con­ser­va­tive in­vestors should not place much em­pha­sis on it. Jig­nesh Shah, in­vest­ment ad­vi­sor of Cap­i­tal Ad­vi­sors says, “Con­ser­va­tive in­vestors should stick to their as­set al­lo­ca­tion and should con­sider these funds of­fer­ing ex­po­sure across as­set classes to achieve their fi­nan­cial goals with­out los­ing peace of mind.” He prefers Axis Triple Ad­van­tage Fund in this cat­e­gory. Ex­perts also em­pha­sise on the im­por­tance of in­vest­ment hori­zon and as­set al­lo­ca­tion of the fund. Monthly in­come plans such as Reli­gare MIP Plus and Tau­rus MIP Ad­van­tage in­vest min­i­mum 65% in fixed in­come in­stru­ments and the rest in gold and eq­uity. Kotak Multi As­set Al­lo­ca­tion Fund in­vests min­i­mum 75% in debt and the rest in eq­uity and gold. Axis Triple Ad­van­tage Fund in­vests 30-40% in eq­uity and debt and 20-30% in gold.

“The is­sue with funds that have low eq­uity al­lo­ca­tion, es­pe­cially MIP, is that their ex­pense ra­tio is on the higher side as com­pared to in­come funds and they don’t gen­er­ate com­men­su­rate ex­tra re­turns as com­pared to in­come funds con­sis­tently,” says Kothari. He prefers Axis Triple Ad­van­tage Fund in this cat­e­gory due to its higher al­lo­ca­tion to eq­uity. He asks in­vestors to get it with a min­i­mum five-year time frame to en­sure that one ben­e­fits from an en­tire eco­nomic cy­cle. In the short-term, these funds can be er­ratic.

Shah says that though it is ideal to put money in sep­a­rate schemes to in­vest in eq­uity, debt and gold, most in­vestors won’t be able to do it due to their small in­vest­ment cor­pus. They also would find it dif­fi­cult to re­bal­ance the port­fo­lio in a tax-ef­fi­cient man­ner like these schemes, he says. Since these schemes are treated as non-eq­uity mu­tual fund schemes, cap­i­tal gains ac­crued in them are taxed at lower of 20.6% with an in­dex­a­tion or 10.3% with­out an in­dex­a­tion. In­vestors with a five-year time frame would be bet­ter off in­vest­ing in growth op­tion of the schemes.

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