Zerodha Mutual Fund on Friday (February 16) launched the Zerodha Gold exchange-traded fund (ETF). The new fund offer (NFO) will continue till Wednesday (February 21). This will offer investors an opportunity to capitalise on the appeal of gold in the current market scenario.
The Zerodha Gold ETF is an open-ended scheme designed to replicate and track domestic prices of gold.
Investment objective and strategy
Falling under the category of other schemes - ETF, the investment objective is to generate returns corresponding to the domestic price of gold before expenses.
This will be achieved through investing in physical gold, subject to tracking errors, fees, and expenses. It's important to note that there is no assurance or guarantee that the investment objective of the scheme would be achieved,
Zerodha Fund House said.
Listing
Investors will be able to buy or sell units of the Zerodha Gold ETF on all trading days on the National Stock Exchange of India or BSE, where the scheme is proposed to be listed.
Additionally, the scheme will offer units for subscription and redemption directly with the mutual fund in creation unit size to market makers and large investors during an ongoing offer period, Zerodha Mutual Fund said.
Face value
The face value of each unit is ₹10 per unit, and the offer for the sale of units during the NFO period is set at ₹10 per unit, subject to statutory deductions.
Investment limit
The minimum application amount during the NFO period is ₹500, with multiples of ₹100 thereafter. There is no entry load and no exit load for units other than the creation unit size.
Asset allocation
The scheme's asset allocation includes a minimum of 95% and a maximum of 100% in physical gold and gold-related instruments, with the remaining allocation in debt and money market instruments, cash, and cash equivalents.
A look at returns of some of the gold ETFs
| Fund name | 1-year return |
|---|
| Axis Gold ETF | 8.50% |
| Nippon India ETF Gold BeES | 8.00% |
| ICICI Prudential Gold Exchange Traded Fund | 8.27% |
| HDFC Gold Exchange Traded Fund | 8.90% |
| SBI Gold ETF | 7.69% |
(Source: Value Research)
Investment considerations and gold ETF inflows
Experts suggest that the launch of the Zerodha Gold ETF comes at an opportune time, considering the current market dynamics and the recent surge in
gold ETF inflows.Gold Exchange Traded Funds (ETFs) have been gaining traction lately, with inflows reaching ₹657 crore in January 2024, marking a seven-fold increase compared to the previous month, according to Association of Mutual Funds in India (AMFI) data.
The appeal of gold as a safe haven and hedge against inflation remains strong amid ongoing geopolitical tensions and higher inflation in the US.
"Gold prices in US dollar terms scaled new highs after going past the $2,100 per ounce mark in early December 2023 but since then has come down gradually. In rupee terms, gold has done fairly well over the last year. Some investors could be choosing to opt for a risk-on approach to investing with the anticipation of a reversal in rate cycle going ahead," said Melvyn Santarita, Analyst at Morningstar Investment Research India.
Commenting on the NFO, Vishal Jain, CEO of Zerodha Fund House, said, “Gold is typically viewed as a financial asset that maintains its value and purchasing power during Inflationary periods. The Gold ETF offers a simple and efficient way for people to invest in gold without the concern of storage and security. As gold has a low correlation with equity, it reduces the overall volatility of your portfolio."
While the launch of Zerodha Gold ETF may provide investors with an option to diversify their portfolios, experts suggest that gold is better as a short to medium-term investment.
"Long-term returns on the yellow metal are often as low as 10% per annum. One should not make too heavy or long-term investments in gold. Allotting 5-10% of the investment portfolio to gold ETFs is a wise idea. This will also help keep the portfolio robust and the returns stable," as per Bankbazaar.
