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Combining Gold & Equity

A fund that will invest in gold as well as equity

The ongoing global economic and stock market turmoil has fewer investors asking whether or not they should invest in gold. The relevant question is increasingly – How can we invest in gold?

Besides buying actual gold bars, we in India have two options. One is to invest in mutual funds that buy the stocks of mining companies abroad or invest in Gold Exchange Traded Funds (ETFs).

Now there is one more interesting option thrown up – a mutual fund that invests in both gold and equity.  UTI Wealth Builder Fund-Series II will invest in a diversified portfolio of equity and equity related instruments as well as Gold ETFs. It also has a debt and money market component. 

The equity allocation will not be restricted to any market capitalisation or sector. It will be tilted towards large caps though and will also employ derivatives to hedge and manage volatility. The exposure to equity can vary from 65% to 100%. However, the exposure to Gold ETFs will be anywhere from 0 to 35%. Ditto for debt and money market instruments.

This combination of equity, debt and gold is an innovative scheme and looking at the asset allocation and large cap tilt, it should be a conservative offering with low volatility.

It’s mandatory to have a demat account when investing in a Gold ETF.  That requirement is eliminated here. Moreover, unlike funds which buy gold mining stocks, this one will directly have exposure to gold via an ETF. A well thought out combination of gold and equity, And since the equity exposure is a minimum of 65%, for tax purposes it will be treated like an equity fund. So investors selling their units after a year will not have to pay any capital gains tax.

Scheme: UTI Wealth Builder Fund-Series II
Type: Open ended
NFO period: October 21 – November 19, 2008
Plans: Retail & Institutional
Min. amount: Rs 5,000 (retail), Rs 1 crore (institutional)
Entry load: 2.25% (<Rs 1 crore)
Exit load: 1% if sold within 1 year from offer period
Benchmark: BSE 100 (equity), CRISIL Bond Fund Index (debt), gold price as per SEBI regulations for Gold ETFs (gold)
Fund Manager: Harsha Upadhyaya