Gold – A foundation asset class for wealth creation Gold a unique asset plays many roles with an investor’s portfolio. Indian consumers consider gold jewellery as an investment and are well aware of gold’s benefits as a store of value. Gold is also recognized as a tradable asset.
It is one of the foundation assets for Indian households and a means to accumulate wealth from a long term perspective. Gold investment has been in the culture of Indian tradition and has been on rise amongst the modern investors as well, due to the financial uncertainty and inflationary pressures.
Sector View & Outlook Overview:
Gold is used as a store of value and form of currency since times immemorial. Gold has the longest history and has successfully stood the test of time. Gold exhibited a stealer performance during the last decade where it appreciated from Rs. 535 / gram as on 29.04.2002 to Rs. 2865 as on 15.04.2013.
||Gold Price Change (USD)
||Gold Price Change (INR) |
Prices in gold had a recent fall of ~ 7% in a single day (15th April 2013) & corrected by 21% in USD term from all time high. Recent Softening in prices is due to talks that Cyprus which is a part of the European Union is about to sell its gold. However the total quantity of gold held by Cyprus is just 13.9 tonnes an insignificant amount in global context. This leads to some technical unwinding among many of the market participants like hedge funds.
Moreover everywhere else central banks are still on a buying spree and this makes the new level more lucrative to add more gold to their reserves, as in the last year central banks have bought the highest quantity of Gold in the last 48 years.
Central Banks bought more than 145 tonnes in the fourth quarter of 2012. Central bank buying for 2012 rose by 17% over 2011 to sum 534.6 tonnes.
China & Russia have been the largest purchaser of Gold in the last decade has only 1.7% & 9.5% of Gold as a percentage to their Treasuries respectively. As compare to Countries like U.S & Germany which has ~75% of Gold as a percentage to their Treasury. Gold production per year is expected to be around 2800 tonnes per year which will barely fulfill the demand of Central Bank & individual consumers.
In 2008, central banks stopped selling gold and began buying. Of the total, 58% of gold reserves were held by US and EU central banks and 2.6% by Asian central banks. “If Asian Central banks increase their gold reserves to 15% they would require more than 15,000 tonnes of gold. This will lead to a spike in demand for gold as the annual production is only 2,800 tonnes.
Outlook by Central Banks on Gold
Sri Lanka’s Central Bank Governor said lower prices are an opportunity for nations to raise gold reserve. The Bank of Korea said the plunge isn’t a big concern because holding the metal is a part of long-term strategy for diversifying currency reserve.
Demand supply dynamics hints towards higher gold prices. Demand will likely continue to move higher but no major additional supply is expected over foreseeable future. Central bankers used to sell around 400-500 tons, now they buy around 400-500 tons. This swing of around 800-900 tons is a major factor because the new gold supply per annum is only around 2650 to 2850 tons.
Low Growth regime is expected to continue across globally.IMF (International Monetary Fund) has reduced the global growth rate to 3.3% from its earlier projection of 3.5%. Moreover USA & Japan are showing signs of significant improvement.
The two likely scenarios spanning out of current policy measures are –first, where we will neither have growth nor inflation and second, where we will see good growth with higher inflation expectation. The tug-of-war between proponents of inflation and deflation may likely continue. Gold tends to significantly appreciated during high inflationary environment and may likely outperform other assets during deflationary environment as financial stress in the system snowball and inventors scouts for assets without credit or counter party risk - gold.
One of the tenets of portfolio theory is that, over the long run, a well balanced asset allocation increases a portfolio’s risk adjusted returns. Hence one should after discussing his financial goals & risk return appetite with his Financial Advisor allocate an appropriate allocation among different asset classes. Historically gold can be considered as a good diversification tool.
Gold prices have corrected significantly and it seems to be an ideal time to invest in gold. Prospective buyers remain upbeat, as the upcoming marriage and festival season along with Akshaya trithiya hint at higher gold demand from Indian investors.
Common Source: Bloomberg, Reuters and World Gold Council
In line with this growing gold investment demand combined with India’s culture for buying gold, Reliance Mutual Fund offers Reliance Gold Savings Fund that would enable investors to invest in gold – the mutual fund way. Positioning of the Fund
Reliance Gold Savings Fund, is the first gold fund of fund in the industry which opens a new avenue for investing in gold as an asset class. The fund seeks to provide returns of gold through investments in R* Shares Gold ETF, which in turn invest in physical gold. It enables you to reap the returns of gold in a paper form without the need of a demat account.
It is a passively managed fund which would enable an investor to save for gold in a convenient manner either through lump sum investment or through systematic investment - the mutual fund way from a long term perspective. It aims to give investors the opportunity to participate in the bullion market in a relatively cost effective and convenient way as you can directly purchase and sell the units at the AMC.
A modern way of accumulating “Gold” the mutual fund way. An investment opportunity which enables an investor to allocate gold a foundation asset to his portfolio in a systematic way. This fund would enable you to add the yellow metal which is usually considered to diversify your portfolio in a convenient way.
- Passively managed Fund of Fund investing in Open-ended R* Shares Gold ETF
- Invests exclusively in R* Shares Gold ETF which in turn invests in physical gold which shall be of fineness( or purity) of 995 parts per 1000 ( 99.5 % ) or higher
- Portfolio focused on providing returns that closely correspond to the returns provided by R* Shares Gold ETF
Benefits of Investing in Reliance Gold Savings FundOpen door for non - demat a/c holders: Investors can invest in this fund through the physical mode across the country thereby making it easily available and convenient for non demat a/c holders”
Systematic Investment Plan (SIP): a long term disciplined investment technique under which you invest a fixed sum of money on a monthly or quarterly basis in a scheme at the prevailing NAV. This allows you to save and invest regularly while you are earning.
This investment technique enables you the following benefits:
- Small, regular investments:A simple way to enter the market by investing small amounts. Small but regular investments go a long way in creating wealth over time
- Rupee cost averaging: Fewer units during rising markets and more units during falling markets, thereby reduces the average cost per unit
- No need for ‘timing the markets’: No need to select the right time and quantity to buy and sell as timing the market is time consuming and risky. It eliminates the need to actively track the markets.
Availability of add-on facilities: Ease of availing add on facilities like Systematic Transfer Plan/ Systematic Withdrawal Plan / Systematic Investment Plan/ auto switch /trigger facility etc.
Liquidity: An investor of Reliance Gold Savings Fund can subscribe and redeem units on all business days directly from the AMC, while purchase and sale of gold ETF units is a factor of liquidity on the exchange.
Ease of investing: Investing in gold through Reliance Gold Savings Fund, the investor can directly subscribe/ redeem units through the physical mode at the various designated investor service centre across the country thereby making it easily accessible and convenient.
Cost Effective: Investing in gold through the Reliance Gold Savings Fund in physical application mode enables you invest in a low cost manner as the investor does not have to incur charges like annual maintenance charges for demat account , delivery brokerages charges, transaction charges incurred for investing through the dematerialized mode.
The investors will be bearing the recurring expenses of the scheme, in addition to the expenses of underlying Scheme.
Taxation: Investments in Reliance Gold savings Fund enables you to claim for long term capital gains tax after a period of one year of investments, whereas for physical long term taxation is available after 3 years.
The tax benefits are as per the current Income Tax laws & rules and any other law for the time being in force. Please refer to Statement of Additional Information for more details. Readers are advised to seek independent professional advice and consult their tax advisors and arrive at an informed investment decision before making any investments.
Systematic Investing in Gold- An edge to accumulating wealth It endeavors to inculcate a regular saving habit to your investments in gold through systematic investment plan. It provides an easy and a convenient way to reap the returns of gold through regular and small amount investment.
|SIP Return as on 31th March ,2013 |
||10 Years |
|SIP Start Date
|Gold Price (Rs/Gm) (As on 31/03/2013)
|Total No. of gms accumulated
|Total Amount Invested in Rs.( Monthly SIP of Rs 5000/-
|Market Value if invested in Gold in Rs.
|Return on SIP in Gold
Past Performance may or may not be sustained in future.
Assumptions - Returns on SIP of Gold are annualized and cumulative investment return for cash flows resulting out of uniform and regular monthly subscriptions have been worked out on “Excel” spreadsheet function known as XIRR. It is assumed that a SIP of Rs. 5000/- each executed on 2nd of every month has been taken into consideration including the first installment.
Disclaimers - The amounts invested in SIP and the market values of such investments at respective periodic intervals thereof are simulated for illustrative purposes for understanding the concept of SIP. This illustration should not be construed as a promise, guarantee on or a forecast of any minimum returns. The Mutual Fund or the Investment Manager does not assure any safeguard of capital and the illustrated returns are not necessarily indicative of future results and may not necessarily provide a basis for comparison with other investments. SIP does not guarantee or assure any protection against losses in declining market conditions.
Portfolio & Scheme Features As on 30th April, 2013
| Asset Allocation as on 30th April, 2013 |
|R* Shares Gold ETF
|Cash and Other Receivables
Asset Allocation: Under normal circumstances, the anticipated asset allocation would be:
||Indicative asset allocation
(% of total assets)
|Risk Profile |
|Units of R* Shares Gold ETF
||Medium to High |
|Reverse repo and /or CBLO and/or short-term fixed deposits and/or Schemes which invest predominantly in the money market securities or Liquid Schemes*
||Low to Medium |
*The Fund Manager may invest in Liquid Schemes of Reliance Mutual Fund. However, the Fund Manager may invest in any other scheme of a mutual fund registered with SEBI, which invest predominantly in the money market securities.
The deviation from the underlying ETF may occur mainly on account of the receipt of cash flows which on an average takes 5 days given the existing operational procedure.
| Scheme Features: |
||The investment objective of the Scheme is to seek to provide returns that closely correspond to returns provided by R* Shares Gold ETF |
|Minimum amount for purchase / redemption / switches |
|Minimum Application Amount: Rs. 5,000 and in multiples of Re. 1 thereafter |
|Additional Purchase Amount|
Rs 1000 and in the multiple of Re.1 thereafter
|Minimum Switch Amount|
Will be as per the minimum application amount in the respective scheme which may have been opted by the investor for switching the units/amount where the switch facility is available.
|Minimum Investment Amount for Systematic Investment Plan
||Minimum investment amount for investing SIP route is as follows:|
(1) Rs.100/- per month and in multiples of Re. 1/- thereafter for minimum 60 months
(2) Rs.500/- per month and in multiples of Re. 1/- thereafter for minimum 12 months
(3) Rs.1000/- per month and in multiples of Re. 1/- thereafter for minimum 6 months
(4) Rs.500/- per quarter and in multiples of Re. 1/- thereafter for minimum 12 quarters
(5) Rs.1500/- per quarter and in multiples of Re. 1/- thereafter for minimum 4 quarters
|Load Structure |
|Entry Load* : Nil|
*In accordance with the requirements specified by the SEBI circular no. SEBI/IMD/CIR No.4/168230/09 dated June 30, 2009 no entry load will be charged for purchase / additional purchase / switch-in accepted by the Fund with effect from August 01, 2009. Similarly, no entry load will be charged with respect to applications for registrations under systematic investment plans/ systematic transfer plans accepted by the Fund with effect from August 01, 2009.
|Exit Load: 2%- If redeemed or switched out on or before completion of 1 year from the date of allotment of units, |
Nil - If redeemed or switched out after the completion of 1 year from the date of allotment of units
||11th March , 2011 |
||The Scheme’s performance will be benchmarked against the price of physical gold. |
||Hiren Chandaria |
||Rs 2271 Crs ( As on 31/03/2013) |
Disclaimer The Investors will be bearing the recurring expenses of the scheme, in addition to the expenses of underlying scheme i.e R*Shares Gold ETF.
The views expressed herein constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers. Certain factual and statistical (both historical and projected) industry and market data and other information was obtained by Reliance Capital Asset Management Ltd (RCAM). RCAM from independent, third-party sources that it deems to be reliable, some of which have been cited above. However, RCAM has not independently verified any of such data or other information, or the reasonableness of the assumptions upon which such data and other information was based, and there can be no assurance as to the accuracy of such data and other information. Further, many of the statements and assertions contained in these materials reflect the belief of RCAM, which belief may be based in whole or in part on such data and other information.
The Sponsor, the Investment Manager, the Trustee or any of their respective directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and opinions given are fair and reasonable. This information is not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Recipients of this information should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice, verify the contents and arrive at an informed investment decision before making any investments.
None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material.
The Sponsor, the Investment Manager, the Trustee, any of their respective directors, employees including the fund managers, affiliates, representatives including persons involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities thereof, of company(ies) / specific economic sectors mentioned herein.
Scheme specific Risk Factors: The investors will be bearing the recurring expenses of the scheme, in addition to the expenses of underlying Scheme. The Scheme may invest predominantly in R* Shares Gold ETF of Reliance Mutual Fund. Hence the Scheme’s performance may depend upon the performance of the underlying mutual fund scheme. Any change in the investment policies or the fundamental attributes of the underlying scheme could affect the performance of the Scheme. Risk associated with RGETF will also be applicable to the investor viz. Central banks’ sale, Producer mining interest, Macro-economic factors, Geo political issues, Seasonal demand, Change in duties & levies. Please refer SID for full scheme Specific risk factor.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.