Why invest in Edelweiss Gold and Silver ETF Fund of Fund

Aug 26, 2022 / Advisorkhoj Research Team | 6 Downloaded |  1082 Viewed | | | 2.5 |  5 votes | Rate this Article
Mutual Funds article in Advisorkhoj - Why invest in Edelweiss Gold and Silver ETF Fund of Fund
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Edelweiss Mutual Fund is launching a Fund of Funds (FOF) which will invest in Gold and Silver exchange traded funds (ETFs). Exchange traded funds are mutual funds schemes which track some market index or price of commodities e.g. gold, silver. ETFs are listed on stock exchanges and are traded like stocks.

Edelweiss Gold and Silver ETF Fund of Fund NFO will be open for subscription from 24th August 2022 to till 7th September 2022. During the NFO period, you can purchase units of the scheme at par value (Rs 10/unit). After the NFO period, you can buy / sell units of the scheme at prevailing Net Asset Values.It’s a first of its kind investment option in India which enables you to invest in both the precious metals Gold and Silver together through a single investment.

Why you should invest in Gold and Silver ETFs?

  • As you may know, India is one of the largest markets of gold in the world. Indian families buy gold on auspicious occasions like Akshay Tritiya, Dhanteras, Deepawali, weddings etc. With rising affluence demand of gold is increasing in India.

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

  • When you store your gold jewellery in a bank locker, a fee is debited every year from your savings bank account. There are no storage costs if you invest in gold ETFs. As such, gold ETFs are much more cost efficient investments compared to physical gold.

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

  • Both the precious metals are also seen as stores of value since their value increases over time. Gold and silver can be used as hedge against inflation. Both the asset classes have the potential to beating inflation in the long term. Hence you should buy gold and silver for investment purposes. Instead of buying gold and silver as bullion (e.g. bars, ingots, coins etc.) which involves storage costs (e.g. bank locker fees), you should invest in Gold and Silver ETFs which are much more cost efficient investments.

  • Spreading your investments over multiple asset classes (i.e. asset allocation) will diversify / reduce your portfolio risks. Both gold and silver can be used for your asset allocation purposes. Gold and silver have low correlation with equities. Gold is usually counter-cyclical to equities. It can bring stability to your portfolio in different investment cycles. Silver usually outperforms gold in bull-markets. Hence it can add further diversification to your investment portfolio.

Why you should have gold as a hedge against inflation?

You can see in the chart below that gold beat inflation in most years and over a long investment horizon as well.


Mutual Funds - Gold beat inflation in most years and over a long investment horizon

Source: Advisorkhoj Research, World Bank, as on 31st December 2021). Disclaimer: Past performance may or may not be sustained in the future.


How gold brings stability to your portfolio?

The chart below shows that Gold outperforms (see the years circled in red) in bear markets for equities. Adding gold to your portfolio will bring stability across market cycles.


Mutual Funds - Gold outperforms in bear markets for equities

Source: Advisorkhoj Research, National Stock Exchange, as on 31st December 2021). Disclaimer: Past performance may or may not be sustained in the future.


Why silver willadd further diversification to your portfolio?

While gold is counter-cyclical to equities and tends to outperform in bear markets, it tends to underperform in bull markets when investors are ready to take more risks. However, silver tends to outperform gold in bull markets because silver demand for industrial use grows in bull markets (higher economic growth). The chart below shows gold versus silver performance in two bull markets separated by almost 15 years.


Mutual Funds - Gold versus silver in bull market (2005 – 2007)

Source: Edelweiss MF. Disclaimer: Past performance may or may not be sustained in the future.


Mutual Funds - Gold versus silver in bull market (2020 – 2021)

Source: Edelweiss MF. Disclaimer: Past performance may or may not be sustained in the future.


About Edelweiss Gold and Silver ETF Fund of Fund

  • The Fund of Fund will invest in a mix of Gold ETF & Silver ETF.

  • The FoF will aim to maintain equal allocation between Gold ETF & Silver ETF & rebalance it periodically.

  • The underlying ETFs for the FoFs will be selected based on liquidity on the exchange, tracking error, & other relevant factors.

  • The FoFs will be priced based on the closing price of the underlying ETFs on the exchange.

Why invest in Edelweiss Gold and Silver ETF Fund of Fund?

  • Gold and silver are important for asset allocation because these asset classes have low correlation with equities and hence offer risk diversification.

  • While gold always has enjoyed huge domestic demand, the industrial use of silver is rising for new age technologies e.g. solar panels, smartphones, electric vehicles etc. Both gold and silver gives you a good hedge against inflation.

  • Edelweiss Gold and Silver ETF Fund of Fund is one of kind product, which gives exposure to both gold and silver in a single product for the first time in India.

  • You can take exposure in gold and silver by investing just Rs 5,000 in Edelweiss Gold and Silver ETF Fund of Fund. Purchasing physical gold and silver requiressignificantly higher outlay.

  • You can also invest in Edelweiss Gold and Silver ETF Fund of Fund through Systematic Investment for your long term financial goals.

  • Fund of Funds structure offers you moreconvenience, affordability, and liquidity as compared to physical Gold and Silver.

Is this a good time to invest in precious metals?

  • The Dollar index has a negative correlation with precious metal. The Dollar has been very strong over the past few months. As a result gold and silver prices have corrected.

  • The US GDP has contracted for the last 2 consecutive quarters. With the US economy weakening and the interest rate tightening cycle coming to an end, the Dollar Index in likely to weaken.

  • This can lead to a rally in precious months in the coming times.

Who should invest in Edelweiss Gold and Silver ETF FOFs?

  • Investors looking to reduce their downside risks in market downturns.

  • Investors looking for cost efficient and liquid alternative investment options to physical gold and silver.

  • Investors who are prepared for short term volatility

  • Investors who have sufficiently long investment horizons.

Investors should consult with their financial advisors if Edelweiss Gold and Silver ETF Fund of Fund is suitable for their investment needs.


Mutual Funds - Disclaimer


Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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