PI Global Investments

Edelweiss MF to launch gold & silver FOF. Should you invest?

Edelweiss Mutual Fund is launching Edelweiss Gold & Silver FOF, a fund of funds that will invest in a mix of gold and silver ETFs. The Edelweiss Gold and Silver FOF will be launched on August 24. The fund will aim to maintain an equal allocation between Gold ETF and Silver ETF and rebalance it periodically. Bhavesh Jain and Bharat Lahoti will be the fund managers of the scheme. If you are interested in investing in a scheme that will invest in both gold and silver, you may take a closer look at the new offering.

The fund house says that the ETFs will be selected based on liquidity on the exchange, tracking error and other relevant factors. The fund house’s logic of a FOF investing in both gold and silver is to minimize the effort of investing separately in the two metals and also adding the FOF advantage to it. Many other mutual fund houses like

MF have filed draft for similar schemes.

Market analysts believe that gold performs well during an economic downturn while Silver outperforms during precious metal bull rallies. Both provide a good hedge against inflation in the long run. The fund house says that both these precious metals have a limited supply and demand is rising very fast. Silver is also set to benefit from rising new-age technology demands from Electric vehicles, smartphones, solar panels, etc. The fund managers at Edelweiss Mutual Fund believe that since both the metals have performed poorly in recent times, it can be a good entry point.

“Gold and silver, both have some commonalities in terms of hedge against inflation and low correlation with equities and fit well in one’s portfolio for diversification needs. These two precious propositions of both the metals complement each other, Gold performs well during the recession while Silver outperforms during precious metal bull rallies. Also, in the coming years Silver will benefit from rising new-age technology demands from Electric vehicles, smartphones, solar panels, etc.. Hence, we thought of combining these two precious metals in one fund to provide ease and tax efficiency to our investors. From a timing point of view, both metals have performed poorly in recent times, which points toward a good entry point for investors,” said Radhika Gupta, CEO, Edelweiss Mutual Fund.

Should you invest?
The Fund of Funds structure offers more convenience, affordability and liquidity as compared to physical gold and silver. However, mutual fund advisors are not convinced whether this fund should be a must have for retail investors.

“From an asset allocation perspective, one need not have an allocation in silver. Within both these precious metals, gold has a history of being a hedge against inflation and stock market downturns particularly during uncertain times. Whereas silver has a huge industrial usage and limited investment and personal use, because of which silver tends to be more volatile. Considering these characteristics, diversifying in gold does help; however, we cannot say the same about silver,” says Harshad Chetanwala, founder, MyWealthGrowth, a wealth management firm based in Mumbai.

Advisors believe that gold has the habit of surging and then remaining flattish or negative, it will do better than inflation over a period. However, they say that allocation in gold ensures that during bad times the value of money is still being held. “From an investment perspective, investing in a gold fund could be a better choice instead of a blend of gold and silver in our opinion. Having said that, someone who actively invests in silver as well as gold on a commodities exchange and wants to invest in a blend of both these metals may like to consider investing,” says Harshad Chetanwala.

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