IDBI Gold Exchange Traded Fund

An open-ended gold exchange traded scheme

Summary

Type	Open-ended gold exchange traded scheme.	Benchmark Index	Domestic price of physical gold
Min. Investment	For Single Investments (i.e.Lumpum) Rs 10,000 and in multiples of Rs 1 thereafter For on-going investments Authorised participants* and large investors** - Creation of unit lot of 1,000 units and multiples of 1,000 units thereof or in equivalent amount in cash. The AMC will not accept portfolio deposit (i.e. physical gold) from its investors. However the mutual fund house at its absolute discretion may accept portfolio deposit (i.e. physical gold) from authorised participant subject to the satisfaction of conditions prescribed by the custodian appointed by the Mutual Fund for the custody of gold. Other investors - On an on-going basis, other investors may subscribe to the units of the scheme by purchasing the units from the stock exchange where the scheme is listed. Minimum size for subscription on the stock exchange is 1 unit or in multiples thereof.
Face Value	Rs 100 per unit	Expense Ratio:	1.50% of weekly average net assets of the scheme
Entry Load	Not applicable	Exit Load *	Nil
Issue Opens	October 19, 2011	Issue Closes	November 2, 2011

Note: * It refers to the member of the NSE or any recognised stock exchange or any other person who is appointed by the mutual fund house to act as authorised participant for the scheme.

** Large investor for the purpose of this scheme would mean Investors other than “authorised participants”, who deal in creation unit size for cash only.

 

Investment Objective*

The investment objective of the scheme is to, “invest in physical Gold with the objective to replicate the performance of Gold in domestic prices. The ETF will adopt a passive investment strategy and will seek to achieve the investment objective by minimising the tracking error between the Fund and the underlying asset.”

Is this fund for you?

IDBI Gold Exchange Traded Fund (IGETF) is the first commodity fund from the stable of IDBI Mutual Fund which focuses on investing in the precious yellow metal – gold (through physical buying) thereby aiming to replicate the performance of gold in the physical market and reduce the tracking error. IGETF will follow a passive investment style and would remain invested in physical gold, regardless of the prevailing gold price or future outlook for this asset class.

Tracking error in respect of this mutual fund scheme is defined as the annualised standard deviation of the difference in returns between the mutual fund scheme and the domestic price of gold. It is noteworthy that tracking error are inherent in a passively managed mutual fund schemes, and such errors may cause the scheme to generate returns, which are not in line with the performance of the designated benchmark – here the domestic price of physical gold. It (tracking error) may arise due to the various factors, but not limited to:
 

• Annual recurring expenses charged by the scheme
• The scheme buying or selling gold at different points of time during the trading session at the prevailing spot prices which may not correspond to the closing price used for NAV computation.
• Delay experienced in purchasing or selling gold (due to creating a lot size required for the transaction, illiquidity of gold etc.)
• Sale of gold to meet redemptions, defray annual expenses etc.
• Cash held by the scheme

However, the IGETF shall aim to keep shall endeavor to keep the annualised tracking error lesser than 2% (annualized) at all times. But there may be time when the tracking error may exceed 2% due to the aforementioned factors amongst others; but the fund manager of IGETF would attempt to rebalance the same within 30 days.
 

The fund is mandated to allocate its assets as under:

Type of Instrument	% of Net Asset	Risk Profile
Physical Gold	95 % - 100 %	Medium to High
Debt and Money Market Instruments	0 % - 5 %	Low to Medium

(Source: Scheme Information Document)

 

Fund Manager Profile

IGETF will be managed by Mr Gautam Kaul, who is a Bachelor of Commerce and also has to his credit an MBA. Prior to joining IDBI Mutual Fund in March 2010, Mr Kaul has worked with Religare Mutual Fund (as a dealer and fund manager – fixed income), Sahara Mutual Fund (as a dealer) and Mata Securities Pvt. Ltd. (as a dealer). He has a total work experience of over 10 years in debt markets, including 6 years in the mutual fund industry.

 

Fund Outlook

Being a passively managed mutual fund scheme, IGETF would closely link it performance with domestic prices of the precious yellow metal - gold. Aiming to keep its tracking error sub 2%, IGETF’s launch comes at a time where gold prices are near their peak in India (as well as other parts of the globe). Hence, this may be a daunting task for the fund manager to bet on gold at these elevated levels. However if global economic turmoil steered by the “debt-overhang” situation escalates then, northward movement in gold prices would continue (as investors would prefer to take refuge under the precious yellow metal) and investors would benefit. But having said that, cyclicality of the asset class should not be overlooked which can make a case for corrective phases.

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Comments
info@tsv-glinde.de Nov 04, 2011 Heck yeah this is exactly what I needed.
bobbydnash3@aol.com Nov 04, 2011 Great stuff, you helped me out so much!

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