Saturday, April 21, 2012

Reliance Gold Savings Fund :

Gold – A foundation asset class for wealth creationGold a unique asset plays many roles within an investor’s portfolio. It is one of the foundation assets for Indian households and a means to accumulate wealth from a long term perspective. Gold investment has been in the culture of Indian tradition and has been on rise amongst the modern investors as well, due to the financial uncertainty and inflationary pressures. Investors are increasingly recognizing the strategic case for including gold in portfolio due to its diversification benefits and at times hedge against inflation.
Gold Overview & OutlookOverview:
Global gold prices have remained volatile since last couple of months. It has corrected from a high of 1921.15 USD/ Oz during Sept, 2011 to low of 1522.65 USD/Oz during Dec 2011 and currently hovering around 1675 USD/Oz. Major Factors affecting gold price movement are concerns over European Sovereign debt, geopolitics, tapering global growth, high crude oil prices along with ambiguity over taxes on gold in India. It is interesting to note that, if we negate the short term implication, most of the factors stated above support gold prices from a medium to longer term perspective.

Given the current macroeconomic headwinds, it is not surprising that US continues to endorse accommodative policy stance. Fed Vice Chairman Janet Yellen indicated that borrowing costs are likely to remain low through 2014 as central bank misses its goal for full employment and inflation remains in check. On the same lines, Bank of Japan Governor Masaaki Shirakawa pledged to continue to add monetary stimulus. This may seem prudent policy stance given the reemergence of sovereign debt concerns in Europe however the longer term ramifications are more or less ignored to live a another day. This is going to lead to higher inflation over medium to long term if no corrective measures are taken.

Eurozone’s 3rd and 4th largest economy are in limelight over debt concerns. Growing number of investors are worried that Spain’s budget troubles will constrain Europe’s ability to borrow. Indeed , Italy’s 4.9 Billion Euro auction results were a shade better than pessimist expectation but disappointed many prudent investors. There is a good probability that European Central Bank may re-activate bond-buying program if things deteriorate further. Again, China’s economic growth slowed in the first quarter, hurting growth momentum. The economy grew 8.1 percent in the first three months over year ago levels. This is the slowest pace in 11 quarters. The growth engine which propelled the world out of last recession is showing signs of moderation that indicates we might not have a strong support this time if we head for a recession.

Two likely scenarios spanning out are, a deflationary environment - where we will neither have growth nor inflation. Alternatively we are likely to envisage decent to good growth with higher inflation expectation. The current prices action in global financial market seems to be favoring the second scenario. In either of the scenario gold tends to benefit as gold tends to benefit during higher inflationary environment and is also seen as an alternative asset.

In India, The world’s largest consumer and importer of gold till last year, is at the verge of losing its status to china. Fourth Quarter consumer demand in China beat India’s for the first time in almost three year. Again, China is likely to top India as the biggest buyer annually this year. Indian Gold investors have been perplexed since last couple of weeks. The Union budget proposed a tax hike on gold in all its forms. Import duties on gold bars have gone up from 2 percent to 4 percent following a revision from fixed rate to fixed percentage in January, 2012. Again, Excise duty of 1 percent has been levied on unbranded jewelley along with collection of 1 percent income tax from retailers on sale of jewellery above Rupees one lakh (~ 4000USD). Jewellery maker across the country went on a 20 day long strike opposing the levies. And it was only after the assurance from Finance minster that he will look into jewelers demand that they called for the strike. 
OutlookGold prices in India have been more resilient. They have traded in a range between Rs 25405/10 grams and Rs 29123/10 grams. Off lately, Indian rupee has shown a tendency to move in such a fashion that it negates the fall in dollar value of gold to a decent extent and reduce the volatility for Indian investors.

US economy is comparatively stronger than many other prominent economies and Sovereign debt crisis in Europe can lead to stronger dollar as investor take a flight to safety in US treasury and thereby increasing the demand for US dollar. Strength in US dollar may put downward pressure on international gold prices but the impact in Indian terms is very subduded, as appreciating dollar most likely leads to rupee depreciation which is positive for Indian gold prices.

At macro level, negative real interest rates, longer term inflationary concerns, currency debasement, stronger physical demands especially from China, Central bank’s accumulation of gold and thrust for portfolio diversification are key factors supporting gold prices bulls.

On the geopolitical front, the US and allies accuse Iran of secretly developing the capacity to make an atomic bomb, while Iran says its nuclear program is peaceful. In addition to this South Sudan, Syria and Yemen among others have lead crude prices to move higher. Brent has gone up by 13 percent year till date. Increasing crude oil prices leads to higher input cost and that hurts global growth momentum and fuels inflation. This increases gold’s appeal as an alternative asset and investors tend to park money in gold during uncertain times.

Again, Gold does not have statistically significant correlation with other financial assets and has comparatively lower volatility. Hence, besides being an absolute performer, gold may be considered for portfolio diversification.

Akshaya Trithiya is the holy day for Hindus and Jains and this auspicious day to buy gold falls on 24, April, 2012. The word "Akshaya" means never ending in Sanskrit and the day is believed to bring good luck and success. The day is considered auspicious for starting new ventures and people buy gold during this day.

The long term outlook for gold looks positive. Any correction may be looked as opportunity to accumulate and Long term prudent investor should continue investing in gold in a phased manner as it likely to improve risk adjusted returns for the portfolio.

Common Source for Gold View: Bloomberg, Reuters, World Gold Council

Investment Case for Gold-an asset class apartThe Yellow metal continues to breach its high(YOY) since 2001 till date.

Performance BSE

Past Performance may or may not be sustained in future. The above graph gives an illustration of the performance of Gold on the basis of historical data till 23rd September, 2011, if invested directly. The same should not be construed as an indication, promise, guarantee or a forecast of any returns. The details may not necessarily provide a basis for comparison with any other investment avenues. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. Source: Bloomberg, Gold (USD/Oz). 
The graph above shows the open, close high and low from 2001 till September 2011. The figure in the graph indicates the movement of gold prices every year.
  • The gold prices have risen for 10 consecutive years driven by recovery in key sectors of demand and continued global economic uncertainty
  • Moreover there is a mismatch in demand and supply of gold with the declining trend of official sector sales. In fact for the first time over two decades, the official sector is set to record net inflows in 2010.(Source: World Gold Council)
  • The performance of gold has not only been strong, but its volatility also remained low, providing a foundation for a well diversified portfolio
  • Asset allocation with gold aims to provide an opportunity to stabilize returns of the portfolio over a period
  • Gold as asset over centuries has maintained its value against inflation and could be considered as hedge against inflation

“From being an alternative investment option, gold has gained the status of ‘must have’ in any portfolio”

In line with this growing gold investment demand combined with India’s culture for buying gold, Reliance Mutual Fund offers Reliance Gold Savings Fund that would enable investors to invest in gold – the mutual fund way.

Positioning of the FundReliance Gold Savings Fund, is the first gold fund of fund in the industry which opens a new avenue for investing in gold as an asset class. The fund seeks to provide returns of gold through investments in Reliance Gold Exchange Traded Fund, which in turn invest in physical gold. It enables you to reap the returns of gold in a paper form without the need of a demat account.
It is a passively managed fund which would enable an investor to save for gold in a convenient manner either through lump sum investment or through systematic investment - the mutual fund way from a long term perspective. It aims to give investors the opportunity to participate in the bullion market in a relatively cost effective and convenient way as you can directly purchase and sell the units through the AMC.
Investment PhilosophyA modern way of accumulating “Gold” the mutual fund way. An investment opportunity which enables an investor to allocate gold a foundation asset to his portfolio in a systematic way. This fund would enable you to add the yellow metal which is considered hedge to inflation and diversify your portfolio in a convenient way.
  • Passively managed Fund of Fund investing in Open - ended Reliance Gold Exchange Traded fund
  • Invests exclusively in Reliance Gold Exchange Traded Fund which in turn invests in physical gold which shall be of fineness(or purity) of 995 parts per 1000 (99.5 %) or higher
  • Portfolio focused on providing returns that closely correspond to the returns provided by Reliance Gold Exchange Traded Fund
Benefits of Investing in Reliance Gold Savings Fund
Open door for non - demat a/c holders: Investors can invest in this fund through the physical mode across the country thereby making it easily available and convenient for non demat a/c holders”

Systematic Investment Plan (SIP): a long term disciplined investment technique under which you invest a fixed sum of money on a monthly or quarterly basis in a scheme at the prevailing NAV. This allows you to save and invest regularly while you are earning.
This investment technique enables you the following benefits:
  • Small, regular investments: A simple way to enter the market by investing small amounts. Small but regular investments go a long way in creating wealth over time
  • Rupee cost averaging: Fewer units during rising markets and more units during falling markets, thereby reduces the average cost per unit
  • No need for ‘timing the markets’: No need to select the right time and quantity to buy and sell as timing the market is time consuming and risky. It eliminates the need to actively track the markets.

Availability of add - on facilities:Ease of availing add on facilities like Systematic Transfer Plan / Systematic Withdrawal Plan / Systematic Investment Plan / auto switch / trigger facility etc.

Liquidity: An investor of Reliance Gold Savings Fund can subscribe and redeem units on all business days directly from the AMC, while purchase and sale of gold ETF units is a factor of liquidity on the exchange.

Ease of investing: Investing in gold through Reliance Gold Savings Fund, the investor can directly subscribe / redeem units through the physical mode at the various designated investor service centre across the country thereby making it easily accessible and convenient.

Cost Effective: Investing in gold through the Reliance Gold Savings Fund in physical application mode enables you invest in a low cost manner as the investor does not have to incur charges like annual maintenance charges for demat account , delivery brokerages charges, transaction charges incurred for investing through the dematerialized mode.
The investors will be bearing the recurring expenses of the scheme, in addition to the expenses of underlying Scheme.

Taxation: Investments in Reliance Gold savings Fund enables you to claim for long term capital gains tax after a period of one year of investments, whereas for physical long term taxation is available after 3 years.

The tax benefits are as per the current Income Tax laws & rules and any other law for the time being in force. Please refer to Statement of Additional Information for more details. Readers are advised to seek independent professional advice and consult their tax advisors and arrive at an informed investment decision before making any investments.
Systematic Investing in Gold - An edge to accumulating wealthReliance Gold Savings Fund endeavors to inculcate a regular saving habit to your investments in gold through systematic investment plan. It provides an easy and a convenient way to reap the returns of gold through regular and small amount investment.
SIP Return for Gold as an asset class as on September 15, 2011
Period1 Year3 Years5 Years10 Years
SIP Start Date04/10/201002/10/200802/08/200602/08/2001
Gold Price (Rs/Gm) (As on 15/09/2011)2727.842727.842727.842727.84
Total No. of gms accumulated28107227747
Total Amount Invested in Rs.60000180000300000600000
Market Value if invested in Gold in Rs.77487.36290646.68619184.112035916.59
Return on SIP in Gold64.52%34.79%29.97%23.27%

Past Performance may or may not be sustained in future.
Assumptions - Returns on SIP of Gold are annualized and cumulative investment return for cash flows resulting out of uniform and regular monthly subscriptions have been worked out on "Excel" spreadsheet function known as XIRR. It is assumed that a SIP of Rs. 5000/- each executed on 2nd of every month has been taken into consideration including the first installment.

Disclaimers - The amounts invested in SIP and the market values of such investments at respective periodic intervals thereof are simulated for illustrative purposes for understanding the concept of SIP. This illustration should not be construed as a promise, guarantee on or a forecast of any minimum returns. The Mutual Fund or the Investment Manager does not assure any safeguard of capital and the illustrated returns are not necessarily indicative of future results and may not necessarily provide a basis for comparison with other investments. SIP does not guarantee or assure any protection against losses in declining market conditions.
Portfolio & Scheme Features As on 30th September, 2011
  Asset Allocation as on 30th September, 2011
Reliance Gold Exchange Traded Fund97.79 %
Cash and Other Receivables2.21%

Product Features

Asset Allocation:
Under normal circumstances, the anticipated asset allocation would be:

InstrumentsIndicative asset allocation
(% of total assets)
Risk Profile

Units of Reliance Gold ETF(RGETF)95100Medium to High
Reverse repo and / or CBLO and / or short - term fixed deposits and / or Schemes which invest predominantly in the money market securities or Liquid Schemes*05Low to Medium

*The Fund Manager may invest in Liquid Schemes of Reliance Mutual Fund. However, the Fund Manager may invest in any other scheme of a mutual fund registered with SEBI, which invest predominantly in the money market securities.
The deviation from the underlying ETF may occur mainly on account of the receipt of cash flows which on an average takes 5 days given the existing operational procedure.

  Scheme Features-Reliance Gold Savings Fund
Investment ObjectiveThe investment objective of the Scheme is to seek to provide returns that closely correspond to returns provided by Reliance Gold Exchange Traded Fund
Minimum amount for purchase / redemption / switches
Minimum Application Amount: Rs. 5,000 and in multiples of Re. 1 thereafter
Additional Purchase Amount
Rs 1000 and in the multiple of Re.1 thereafter
Minimum Switch Amount
Will be as per the minimum application amount in the respective scheme which may have been opted by the investor for switching the units / amount where the switch facility is available.
Minimum Investment Amount for Systematic Investment PlanMinimum investment amount for investing SIP route is as follows:
(1) Rs.100/- per month and in multiples of Re. 1/- thereafter for minimum 60 months
(2) Rs.500/- per month and in multiples of Re. 1/- thereafter for minimum 12 months
(3) Rs.1000/- per month and in multiples of Re. 1/- thereafter for minimum 6 months
(4) Rs.500/- per quarter and in multiples of Re. 1/- thereafter for minimum 12 quarters
(5) Rs.1500/- per quarter and in multiples of Re. 1/- thereafter for minimum 4 quarters
Load Structure
Entry Load* : Nil
*In accordance with the requirements specified by the SEBI circular no. SEBI / IMD / CIR No.4/168230/09 dated June 30, 2009 no entry load will be charged for purchase / additional purchase / switch-in accepted by the Fund with effect from August 01, 2009. Similarly, no entry load will be charged with respect to applications for registrations under systematic investment plans / systematic transfer plans accepted by the Fund with effect from August 01, 2009.
Exit Load: 2%- If redeemed or switched out on or before completion of 1 year from the date of allotment of units, 
Nil - If redeemed or switched out after the completion of 1 year from the date of allotment of units
Inception Date11th March , 2011
BenchmarkThe Scheme’s performance will be benchmarked against the price of physical gold.
Fund ManagerHiren Chandaria
Quarterly AAUMRs 1480 Crs ( As on 30/09/2011)

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