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
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.