Why invest in Gold and Silver ETF Fund of Fund

 

Why should investors invest in Gold and Silver ETF Fund of Fund?

Mutual funds schemes track some market index or price of commodities e.g. gold, and silver. ETFs ( Exchange Traded Funds) are listed on stock exchanges and are traded like stocks.

We have seen India as the largest market of gold in the world. Indian families buy gold on auspicious occasions like Akshay Tritiya, Dhanteras, Diwali, weddings, etc. which increases the demand for gold in India.

• Indian parents gift gold to their children, daughters-in-law, and sons-in-law on the occasion of their wedding, parents start buying gold for their children’s weddings from a young age. Instead of buying gold jewelry, which invariably contains impurities, you should invest systematically in gold ETFs which represent a certain weight of pure 24-carat gold. As the time comes for your children’s wedding, you can redeem the gold ETF and use the proceeds to purchase gold jewelry as per your preferences without any deduction for impurities.

• You store your gold jewelry in a bank locker, and a fee is debited every year from your savings bank account whereas there are no storage costs if you invest in gold ETFs, ETFs are much more cost-efficient investments as compared to physical gold.

• Silver is also an auspicious metal in India. With its use in jewelry, silver is also used in heavy and new-age industries (e.g. solar panels, electric vehicles, smartphones, etc). With the development of new age technology, the demand for silver is rising but supply is limited. You should also consider investing in silver as an asset class since it has the potential of generating capital appreciation for you over long period horizons.

• Both precious metals retain their value since their value increases over time. Gold and silver are also considered hedges against inflation. Both asset classes have the potential to beat inflation in the long term. So it is wise to buy gold and silver for investment purposes. Instead of buying gold and silver as physical bullion (e.g. bars, ingots, coins, etc.) which incurs storage costs in the form of bank locker fees, you should invest in Gold and Silver ETFs which are much more cost-efficient investments.

• Diversifying your investments over multiple asset classes (i.e. asset allocation) will reduce your portfolio risks. Since Gold and silver have a low correlation with equities. Gold is usually counter-cyclical to equities, which brings stability to your portfolio in different investment cycles. Silver usually outperforms gold in bull markets. Hence it can further diversify the investment portfolio.

Can we invest in precious metals at this Valuation?

As we have observed that the Dollar index has a negative correlation with precious metals. The Dollar has been very strong over the past few months. As a result gold and silver prices have come down.
The US GDP has contracted for the last two consecutive quarters. With the US economy weakening with high inflation and the interest rate tightening cycle coming to an end, the Dollar Index is likely to weaken.

What are Debt Index Funds ? Are they Beneficial/डेट इंडेक्स फंड क्या हैं? क्या वे फायदेमंद हैं

What are Debt Index Funds? How are they Beneficial?

Many people are not aware of these types of Mutual funds Let us find whether the present trend in Debt Index Fund can Enhance the Investor's Portfolio

 
It is well-known that the key to generating optimal risk-adjusted returns and achieving your financial goals is to create a well-diversified investment portfolio. This can be accomplished by investing in a variety of instruments that are spread across the risk-return spectrum. Generally, equity investments are considered vehicles of long-term wealth creation while debt investments are expected to provide steady returns with downside protection.
As we have seen in the previous post about the risks that are associated with debt mutual funds, let us categorize the benefits of these funds 

An ideal solution:
As an investor, you have the option to invest in a wide variety of debt instruments ranging from different categories of debt mutual funds to bonds. However, an ideal solution that can help you combat many of the above risks is a Target Maturity Debt Index Fund. This is a debt investment option that has the features of a bond, i.e., defined maturity and predictable returns, if held till maturity, and has additional features that can help you address the challenges related to liquidity and accessibility. The Target Maturity Debt Index Fund with PSU bonds and SDLs as underlying scores over other investment avenues by packing several benefits in one product. These include:

Predictability of returns: 

Due to the quality issuer (PSUs) and defined maturity, the returns from the Index fund become more predictable. These funds' issue-related risk is minimal since the investment is largely in government and PSU bonds. The interest rate risk is minimized through a target maturity structure that will bring predictability in returns if you stay invested till maturity. A defined or target maturity means that the bonds in the portfolio will mature within a fixed term.
Predictability of returns: Due to the quality issuer (PSUs) and defined maturity, the returns from the Index fund become more predictable. These funds' issue-related risk is minimal since the investment is largely in government and PSU bonds. The interest rate risk is minimized through a target maturity structure that will bring predictability in returns if you stay invested till maturity. A defined or target maturity means that the bonds in the portfolio will mature within a fixed tenure

Easy and low-cost access: 

Unlike in ETFs, you do not need to transact through a Demat account to buy or sell units in an index fund. You can simply purchase the units through the fund house like you would for any other mutual fund scheme.
Liquidity: Since you can easily transact through the mutual fund house to buy and sell units in the Index fund, you need not worry about liquidity in exchange for transacting.

• What are passive debt funds?

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•   These funds aim to replicate the underlying index in terms of portfolio and risk. In other words, the securities in the portfolio are similar to that in the benchmark index, both in terms of issuer and maturity range.
•   Since the funds are passively managed, they are relatively low cost compared to actively managed debt funds.
•   Target Maturity Funds are a kind of debt Passive that have pre-defined maturity and invest in bonds that mature on or before the maturity of the scheme. Such funds offer better visibility of returns and aim to provide a stable investment experience.

      Passive Investing: A long-term bet?

As we have observed Investors have two main investment strategies to generate returns on their investment, Passive investing and Active investing.

Passive investing minimises buying and selling activity and replicates a specific benchmark

or index (it may be Debt or Equity)

Active investing requires frequent buying and selling

Passive funds are cheaper and have a lower expense ratio

Actively managed funds have a higher expense ratio as compared to passive funds

Passive Funds are Replicating benchmark/ index returns

Active Funds are expected to Outperform benchmark/index returns

         Why passive investing is on the rise?

They have higher participation from retail, domestic institutional, and foreign portfolio investors

Simplicity: Owning an index, or group of indices is far easier to implement and comprehend than

a dynamic strategy that requires regular monitoring and rebalancing

Passive investing is subject to total market risk Vs an individual portfolio manager's risk

Passive investing via indexing is an excellent way to achieve diversification

And last but not least Lower fees and operating expenses than actively managed funds

Disclaimer:  It is sufficient to conclude that there are times when Passive Funds have outperformed actively managed funds and vice-a-versa. Hence, it needs to be carefully decided when and how much to invest in Passive Funds for which your investment advisor can help.