SBI Mutual Fund launches gold fund

Gold prices have shot through the roof. That simply means it is becoming increasingly difficult - for both buyers and investors - to purchase even two grams of gold today. The rising price of the yellow metal has made it beyond the reach of many. But one option still available for investors are the schemes launched by mutual fund houses. SBI MF is the latest fund house to launch a gold fund, called the SBI Gold Fund.

Scheme details

The new fund offer (NFO) is open for subscription since August 22 and will close on September 5. The NFO price for the scheme is 10 per unit.

This scheme will invest 95%-100% of assets in units of SBI Gold ETF, with the option to put 5% in the reverse repo/CBLO/short-term fixed deposits and/or schemes investing predominantly in the money market securities or liquid schemes. The minimum application amount is 5,000 under the lump-sum investment option.

There is no entry load. But, you will be subjected to an exit load of 1% if you redeem your investments within a year from the date of allotment.

SIP Advantage

This fund gives you the option to invest money in small sums though the SIP route. Also gold prices ruling high, SIP is the best way to average out the risk, financial advisors say.

Secondly, unlike a gold ETF, you don't need a demat account to buy a gold fund, leave alone the hassle of buying and storing the purest form of physical gold.

Gold ETFs invest directly in physical gold, whereas gold funds invest in gold ETFs. The SBI Gold Fund will primarily invest in SBI Gold ETF. Hence, compare the performance of SBI Gold ETF with other gold ETFs before putting your money in this scheme.

Upside

SIP is the best way to invest in gold when the price is at a peak. SBI Gold Fund gives this option.

Downside

The underlying asset is not physical gold but SBI Gold ETF. If you have a demat account, it is best to invest in a gold ETF.