SBI Gold Fund Review – Think before you Invest

Should I call it a side effect of higher gold price that SBI Mutual Fund is launching SBI Gold Fund? And, SIDE EFFECTs are normally bad… what do you say?  Globally first Gold ETF (exchange traded fund) was launched in 1993 but in India oldest fund come to existence in 2007. In 2008 & 2009, two gold related funds were launched but in 2010 & 2011 nine funds were launched including SBI Gold Fund – five more funds are expected to be launched this year. WHY? Is it because gold price will rise further or is it because gold prices have increased in past?? This is a very important question which you should answer before investing in any Gold Fund.

Let’s first check what SBI Gold Fund is offering & then will try to answer above question.

http://www.tflguide.com/2011/05/mutual-fund-question.html

SBI Gold Fund

SBI Gold Fund allows you to invest in gold without a Demat account (which is a requirement in case of ETF). SBI Gold Fund is a fund of fund & will invest in SBI Gold ETS. This fund provides convenience to invest in gold but increases the expenses.

I will suggest you to go through our earlier articles on Reliance Gold Savings Fundthis will cover:

  • Features & Benefits of SBI Gold Fund
  • Taxation on SBI Gold Fund
  • SBI Gold Fund Vs Gold ETF
  • How to invest in SBI Gold Fund
  • Hidden Points in SBI Gold Fund (must read about dual exit loads & dual expenses)

Reliance Gold Savings Fund & SBI Gold Fund are exact similar funds so if you just read SBI in place of Reliance, the meaning will be same. And ideally Gold is Gold… no distinction whether the fund is run by X company or the Y company. Click here to Read about Reliance Gold Savings Fund. (must check the comments)

http://www.tflguide.com/2015/01/5-reasons-why-not-to-invest-in-mutual-fund-nfo.html

Should you invest in SBI Gold Fund NFO

On facebook I was looking at one interaction between people working with a big distribution house.

Relationship Manager: Now Invest in Real Gold in Monthly SIP. SBI Presents “SBI GOLD FUND” where you may invest in Real 24 Carat Gold in Paper mode.

Boss: Let’s create history this time.

Relationship Manager: we are ready to rock; you will see the historical achievement this time.

Interaction clearly shows they are going to push it very hard but you need this or not is not their problem. That’s the reason I always say NO to NFOs. Fancy of Gold, Craze of SIP, Advertising Campaign, Supporting views from media & a big push from agents may drive you to wrong decision.

My suggestion is even if after reading whole article still you would like to invest in gold funds – go for Reliance or Kotak Gold Fund which are similar to SBI Gold Fund. Benefit is you will immediately get NAVs rather than waiting for couple of weeks.

http://www.tflguide.com/2011/07/best-mutual-fund-for-sip.html

Should you invest in SBI Gold Fund SIP

SIP is a great way to invest but does it make sense to invest in an asset which is in fancy. Check below table which shows details of Reliance Sold Savings Fund SIP.

Months

NAV

Monthly SIP amount

Units

Mar-11

10

1000

100.00

May-11

10.56

1000

94.70

Jun-11

10.71

1000

93.37

Jul-11

10.68

1000

93.63

Aug-11

12.29

1000

81.37

Latest

13.01

0

0.00

Total

5,000.00

463.07

Value of Investment

6,024.51

Abs Returns %

20.49

Don’t you think this is against the views expressed by Warren Buffett?

“If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market (read gold price) during that period?”

Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

http://www.tflguide.com/2016/07/sovereign-gold-bonds.html

Also check what happened with IT Sector Funds between 1998 to till date.

Now come back to our main agenda which may help you in taking final decision.

All that Glitters is not gold.

But now-a days, Gold is glittering more and investors are flocking towards gold. You see, when a user demands a particular commodity more, manufacturer line up for selling more. It is immaterial for the manufacturers whether the product is useful for the end-user or not. They will get their share of profits by selling it and distributors will get theirs. For example, if you are suffering from stomach-ache and you buy a pill that cures head-ache, Pharma Company and the chemist are at no loss. Now when Swine flu was at its peak, people demanded mask and to meet the rising demand, many lined-up to manufacture such masks.

Investment is not much different from above examples. Way back in 1999-2000, When internet bubble or Dot- com bubble was at its peak, mutual fund manufacturers or so called Asset Management Companies came up with Technology Fund came down to as low as Rs 2. Similar thing happened in 2007 when Infrastructure and Real Estate theme was at its peak alternate New Fund success of its first fund, yes 4 infrastructure fund from 1 AMC – because you were ready to give them money. When the bubble got burst in 2008, a plain diversified fund did not lose as much as what happened with infra-related funds.

Gold Vs Equity Cartoon (Dec 2010)

Gold Vs Equity Performance

Now please don’t mis-understand this article as something against Mutual Funds. (Read Understanding Mutual Fund with different Prospective). It is same with even Insurance companies. In 2005 to 2007, they were selling ULIPs as market was in Bull Run and more than 90% of their new premium came from ULIP. In the start of 2008 when markets were at their peak, you were sold Money Plus or Future Plus and in the year 2009 when the markets were at the lowest, you were offered Jeeven Asstha which guaranteed that your money would be safe and would get doubled in 10 years. The fact of the matters is that if you would have invested in Money plus in 2009, your money would have got doubled in less than a year.

What we are conveying is that manufacturers and distributors only want to sell whether or not it is useful for you and in case of investments, since majority of the investors make investment based on previous past performance and based on herd mentality, manufactures and distributors sell so called the TREND OF THE SEASON.

The same theory is being cooked in case of GOLD now days. Mutual Funds are launching GOLD related products Gold ETFs, International Gold Funds, GOLD based Asset allocation fund one after the other as GOLD is in demand. We all remember about Equities- December 2007 of Extreme optimism and February 2009 of extreme pessimism – what was the outcome when people took decision based on herd mentality. In 2007, they lost money and in 2009, they never made money. Today, everyone is ready to convince you that gold price will only go higher but we just want to say – gold should be small part of asset allocation and the reason of buying gold should not be rise in price.

Research on investor psychology

The following are Google trend charts. It analyzes a portion of Google web searches to compute how many searches have been done for the terms you enter, relative to the total number of searches done on Google over time. This clearly shows that people start searching for investment which have gone higher in recent past. Check 2nd Graph of Mutual funds which peaked in December 2007 when equity markets were also at their peak. No one was searching for Mutual funds in the end of 2008 or start of 2009 when actually it was the best time to invest. Upto 2007 end when it was best time to invest in gold but no one was searching for it but when price went up, the number of search went up.

At the end, a famous quote by legendary investor Warren Buffet- “When all the people are thinking is same direction, No one is thinking.”

Disclaimer: These are my personal views. Gold may double or triple from current price or may go half but your financial decision will not make any difference in my life, your agent’s life or to asset management company.(think) As it is your hard earned money – only one suggestion always keep your head cool while taking financial decisions.

So do you think one should buy SBI Gold Fund ?

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53 COMMENTS

  1. I like the way you have put Sharma Ji and Verma ji. Also you have pointed correctly, Equity is the nest asset class for long term investment and gives better returns. Gold is peaking to its highest, invest in Equity for better return on your investments.

    • Hi Dr Kaushik
      HDFC Midcap opportunities is a good fund.It can be part of your portfolio provided the core of your portfolio has large and large and midcap funds.

    • Hi Dr Koushik
      Please read the post Best Mutual Fund For SIP.This will help you in constructing your mutual fund portfolio to meet your long term goal.
      Since you are new to mutual fund investing I would like to stress some points.All mutual fund investments are subject to market risks.How you construct your portfolio depends on your risk appetite.
      In the short term you may see a lot of volatility in mutual fund investing but if you remain invested for more than five years you can expect annual return of around 12% from your investment in equity mutual funds.
      The best way to start is to invest through monthly SIPs.After starting you have to be patient and give time to your investments to grow and ignore the market noise.SIPs work best during volatile markets.
      Initially you can select two or three large cap and large and midcap funds for your portfolio.Once you gain experience you can add one multicap and one mid and small cap fund.

  2. Hi Hemant

    I agree with you on this
    – gold should be small part of asset allocation and the reason of buying gold should not be rise in price.
    You have hit the nail on the head.
    The most important thing is the proper asset allocation.Both equity and gold mutual funds have a place in a portfolio.For long term investment equity mutual funds should form core of the portfolio with gold funds acting as a hedge to balance and add stability to the overall portfolio.So, invest in a gold fund once you have built a well diversified portfolio of equity mutual funds with 5 to 10% portfolio allocation to gold.

  3. Hello hemant,

    Thanks for the wonderful arcticle yet again.

    I wanted to ask i am buying 3 Units every Month as SIP mode of GOLDBEES for an long term perspective.

    is it a wise option. Simultaneously i have an SIP of 15K in 5 MF in Core & Satellite.

    Please let me know your views on GOLDBEES for 5 yrs term.

  4. Quantum Gold saving fund launched in May11 this year appears to be doing well. Is it worthwhile investing in that scheme as it is also a fund of funds predominantly.

      • Lower expense ratio is a good thing. But what about quality of management,experience in handling funds,quantum of funds handled. SBI and reliance are big MF with vast experience and these qualities may prove more important than lower expense ratio alone.I heard Quantum MF also has good reputation. Comparatively will Quantum do better than SBI Gold fund and /or reliance Gold fund?

          • Hi Hemant
            I am a fan of Ajit Dayal. I never miss to read his articles and make it a point to watch his TV interviews. I like his Quantum Theory Of Investment. In his funds role of fund manager has been significantly reduced as systems have been put in place.

  5. Hi Hemant,
    Excellent article and a novel way of making the point with the google search comparison!
    So far, I have stuck with MFs and keep buying every month when the market dips. If I plan to start investing in gold for 5-10% of total allocation, will it be best to start off in this manner with Gold: buy in small amount every quarter, or any other way advisable?

  6. Dear Hemant.Ji
    Indeed, an eye opener, and a dissuade-
    Not to go with the herd, imminently- vulnerable to sheer Exploitation.

    well, another scheme from Tanisq- jewellery- alike SIP- monthly scheme-
    with the purchase of Physical gold and kept in their custody.unlike- ETF /ETS.

    Ofcourse, Equity, predominantly a very long term investment strategy its.
    fill & forget it all along its tenure..

    and your say- most pragmatic , affordable Plan be..!!
    for purchase of physical gold,
    for an event 2-3yrs. ahead , medium term
    or a childs marriage- 10yrs later long term
    or for regular events- child birthday.. short term.

    Hope, you get to reply for this comment..

    • Hi GSReddy
      Investment in equity mutual funds is the best option to meet your long term goals.But you can not afford to forget it along its tenure.You must track it atleast once a year.It is quite possible that a fund in your portfolio may not perform as per your expectations in the long term.You have to take corrective action before it is too late.

  7. I actually don’t believe in declaring ‘equity’ as the best asset class. I believe that no asset class can be the most superior, every asset class goes through its own economic cycles. Sometimes Gold is the best, sometimes real estate, sometimes equity, so its wise to invest across different asset classes.

    • Hi Sridhar
      I agree with you that asset allocation is the most important thing. Nobody can predict the returns from a particular asset class. Having a diversified portfolio is the best thing to do and both equity and gold have a place in that.

  8. hi hemant, can u help me in finding the good insurance policy, one of my close relative have suggested for sbi shubh nivesh, is it worth going for it..??
    I would be grateful if you provide your insight over this.

  9. Good article. I think you have tried to tackle 2 separate angles in this article –
    a. Is gold a good investment right now (given that it has risen so much)
    b. Is investing in SBI Gold fund a good idea.
    These are 2 separate aspects .. e.g. even if (a) is true, (b) may not be true – bcos of fees, taxation etc. I would appreciate more clarification on the (b) aspect of this.
    Regarding actually investing in gold – the rise in price has been astounding – I keep thinking it should plateau now .. but doesn’t happen (not until last week anyway). I think the demand from the ‘unbanked masses’ and people not yet investing in equities will keep the value of gold high for some time.

  10. Hi Hemant,
    First of all thanks for all your helpful advice.
    I am planning to start investing in Goldman BEES gold ETF through my broker Angel Broking.
    They are giving me delivery brokerage of .03 or 30 paisa in delivery.
    which will come some where Rs7.5/- for 1 unit = 2500/-
    Is this brokerage OK or i should negotiate with some other broker ?
    Thanks
    Ankur

  11. Views expressed by Mr. Hemant Beniwal are very useful and one should read their views and understand before investing. Mr. Hemant Beniwal is very good Financial Planner as I am reading his articles since last one month .
    thanks

  12. sir, i am thinking to invest some amount monthly to sbi gold fund for my child education, who is now 3yrs old. will it give good return, or suggest me the best option.

  13. dear

    I am very much new to SBI gold fund scheme exposure….can you plz guide me.

    Hope, you get to reply for this comment..

  14. Hi Mr. Hemant Beniwal,
    Sir I am ARN Holder but don’t take much interest in selling Mutual Funds. I prefer SIP and sell only my very close friends or relatives. In 2008 ( when I was not in this field) invested in DSP Merrill Lynch Tax Saver Fund – Growth Rs.40,000+10,000 first investment on 23rd Jan, and second (Rs.10000) on 28th FeB on recommandation/advise of a broker. Later I read in news papers that DSP Merrill Lynch bankrupted. Then I decided not to believe others and take my own decisions. So I took the AMFI exms in 2009 By d way, DSP Black Rock is paying me Rs. 53,000. Should I withdraw it and invest in other fund or wait for good returns?
    Second question related SBI Gold fund. 3 days ago,One of Broker co.’s manger came at my residence and suggested me to start invest and motivate others to invest in SIP of Gold Fund as gold is a requirement of every Indian at the time of their children’s marriage. So I filled SBI Gold Fund (SIP of Rs. 1000 per month). Today I read your review. I was told that SBI is investing directly in Gold untis. Already I am investing Rs. 4000 per month in different tax saver funds. I will stop SBI Gold SIP. But Sir, which is the best way to invest in Gold if I want to invest only Rs. 1000 PER MONTH.

  15. my self very new person in market.i has read all comments.i like to appreciating Hemant Beniwal .nowadays what is best thing to invest, I have a some spare money.looking for safe,high returns and long term.what is your suggestion?

  16. Hello,

    I want to invest some money to buy a property, but i have only 10 % of the total cost of the property, can someone suggest me where to make aN investment so that i get two times or more of the money invested in the time period of one month or two. I have to invest without any risk as the money i will be investing is the only fund i have. I cant opt for home loan as i dont file IT returns which is a must in case of home loans, and no support from anyone, Please advice.

    • Simran,

      To get double or more than double in a time period of 2-3 months will be like a day dreaming. It is unrealisitic to expect like this. Look for some other alternatives (Look for a property in the range of the money you have) or delay the plan of purchase for some period of time till you gain enough money.

      Lastly once again : To get double or more than double in a time period of 2-3 months will be like a day dreaming

  17. I have invested in SBI Gold Fund So kindly show me how type of this MF and is it good to go long in this fund? kindly suggest me

  18. i have been investing in ‘sbi gold fund-regular plan-growth’ since 2011 in sip mode (rs. 2000/- pm). but i am not getting satisfactory return from it. now my question is should i go on investing for better return in future or sell it off?? kindly suggest.

  19. never invest in SBI gold mutual growth fund, leave alone growth you won’t even get your principal amount back at the time of 3 year redemption, I am a victim of investing 5K every month for 3 years and against principle investment of 180K today after redemption got around 164K – it’s worst managed MF, never ever invest in SBI Gold MF

  20. Sir,
    I was searching for Gold price and SIP and found your article, its nice and its true. I started my SIP in SBI Gold Fund during NFO back in sept 2011, with Rs 1000/- per month, on the other side i have equity SIPs in other mutual funds (not keeping all the eggs in one basket rule)
    Now in October 2015, i am still continuing my SIP in SBI Gold Fund and price of gold has fallen down since the days of your article posted.
    My query is should i hold on with SIP for another 2-5 years, till gold price touch at least 29K near.

    your suggestion is needed

    Thanks

  21. Sir I have invested in sbi gold fund 15k per yr.since 2011 for three yrs regularly after three years stopped.sir now I want do draw my money.what procedure pls guide me

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