I have read about the new Reliance Gold Savings Fund. How different is it from the Reliance Gold exchange-traded fund (ETF)? How is it offering an SIP in this fund?
-Kamakhya Narayan
The new fund offering from Reliance is a boon for investors who do not have a demat account and want to invest in a gold ETF. This is a passively managed fund-of-funds that invests in the open-ended Reliance Gold ETF, which in turn invests in physical gold. Because of such a structure the fund is able to offer the convenient SIP route to investors.
However, while the Reliance Gold ETF has no load, this fund has an exit load of two per cent in the first year. There is also a recurring expense - 1 per cent in Reliance Gold ETF and 0.5 per cent in Reliance Gold Savings Fund that investors need to be cautious about. This is the cost of convenience that one will pay here, instead of paying annual maintenance charges for demat account, brokerage and transaction charges incurred for investing through the dematerialised mode.
I have invested in the funds listed below and would like to further invest Rs 10,000 per month through a systematic investment plan (SIP) mode and lumpsum amount of Rs 2.5 lakh; please suggest the funds to invest in. I want to continue the SIP for next 20 years.
-Atul Agrawal
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You have selected good funds. But, there are a few issues with your portfolio. It lacks diversification. You need diversification in style, not number. Build a portfolio that is based on a core and satellite approach. This approach will provide stability and growth for long-term wealth creation. You should look at investing 70-80 per cent in the core funds and the rest in satellite funds. You can have two-three funds as core holdings comprising large-cap and large- and mid-cap funds, with the satellite component with sector funds and multi-cap funds. This way, the investments have the ability to absorb shocks as well as have the potential to earn higher returns over various market cycles.
| Funds | Returns* (%) | |
| 3-year | 5-year | |
| HDFC Equity | 12.96 | 18.48 |
| HDFC Top 200 | 11.08 | 18.75 |
| ICICI Prudential Dynamic | 10.22 | 17.78 |
| Reliance Growth | 5.84 | 16.44 |
| Reliance Regular Savings Equity | 5.65 | 23.43 |
| *Data as on February 14, 2011 | ||
Also, invest regularly and not in lumpsum. Park the Rs 2.5 lakh in a liquid fund and initiate an SIP into a large-cap fund such as DSP BlackRock Top 100 or IDFC Imperial Equity Plan A and start regular SIPs in existing funds such as HDFC Top 200 and ICICI Prudential Dynamic.
DSP BlackRock World Gold Fund and AIG World Gold Fund have given excellent returns in the past one year. Would you recommend investment in these funds at current valuations?
-Chandi Kumar Goparaju
Investing in international funds is for mature investors looking to diversify risks. It is not for those blindly chasing high returns. These funds have fared well in the past one year but one needs to understand the risks associated with these and the track record of the feeder funds these invest in. Diversification helps reduce risks and boost your portfolio returns. With no country managing to be at the top of the returns charts each year, the case for spreading your investments across countries definitely gets stronger. However, invest only after you understand the risks and benefits of global investing before entering this investment arena.
Value Research