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.
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 Fund – this 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)
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.
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.
|Monthly SIP amount|
Value of Investment
Abs Returns %
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.
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)
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 ?