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Dodging the Demat Account

Reliance AMC is eyeing a bounty, if SEBI agrees

After seeing a spate of gold exchange traded funds (ETF), now it is the turn of the open-end funds to chase gold.

After UTI Wealth Builder II, which partially invests in gold (up to 35% of its assets), this new fund Reliance Gold Savings Fund plans to invest fully in gold ETFs traded on both Indian or foreign stock markets.

What Reliance AMC may really be eyeing is something that is rarely seen in mutual fund industry and that is to circumvent the need to open a Demat account, without which no investments in ETFs can be otherwise undertaken.

For time being it is in the planning stage waiting for the approval of the Securities and Exchange Board of India (SEBI).

Apparently, the fund may have a one-goal policy -- attract investors with a new fund offer (NFO). Although there isn’t much of role for a fund manager in this fund, still one has to pay an annual expense of 0.75 per cent in retail and 0.70 in institutional over and above the one per cent that is charged by the gold ETFs.

This might seem an unnecessary expense to the investor without any add-on value. Moreover, the retail investors have to pay an entry load of 1.5 per cent for investments below Rs 1 crore and exit load of 1 per cent if redeemed before one year.

For  someone who does not own an Demat account, these may seem legitimate expenses as these will ensure that an investor does not have to bear the maintenance cost of Demat account together with the avoidance of hassles of going around opening one.

This fund is suitable for those investors who want to invest in gold but find the idea of opening a Demat account for the sake of investing into gold unjustified.