Kotak Gold Savings Fund-NFO: Review Analysis & Details of Kotak Gold Savings Fund

This article contains info about Reliance Mutual Fund Gold Savings Fund NFO, Review, Analysis, Details & Opinion. High on the heels of Reliance, Kotak too has come out with almost similar Gold Saving Scheme which appears to be an exact replica of Reliance Gold Savings Fund (See Review & Details). One more NFO or New Fund Offer from another mutual fund house of India - Kotak Mutual Fund - has come through. As the name suggests, this is a fund focussed on Gold as an Investment. I however have a concern with the names of both Reliance Gold Savings Fund and Kotak Gold Savings Fund - a savings fund is suppose to give you sure shot returns - that's the general perception when someone talks about "savings". Savings also (directly or indirectly) implies "Protection of Capital" - again a general perception. However, these two schemes with the name "Gold Savings Fund" appear to be a bit incorrect to me (personal perception) as there is neither a guarantee of returns nor any capital protection. Anyways, market and naming convention work their own way - investors and traders should be careful about what a product is and how it works.
In this article, we will analyse how good is this Kotak Gold Savings Fund NFO, whether this Kotak Gold Savings Fund offers anything new or unique for the investors and whether the investors should invest in Kotak Gold Savings Fund.

Kotak Gold Savings FundNFO: Review Analysis & Details

Let's begin with some basic details about Kotak Gold Savings Fund.

What are the NFO dates for Kotak Gold Savings Fund?
The NFO period for Kotak Gold Savings Fund will open on March 4th, 2011 and will close on 18 March 2011.
What is so unique about this Kotak Gold Savings Fund?
Similar to Reliance Gold Savings Fund, this is another fund of fund kind of scheme and investors must understand this thing very clearly. It's a Gold based Fund of Fund scheme (What's this? Fund of Funds Explained).
However, there is a difference. Usually a fund of fundS invests in many funds (not single one), but like Reliance Gold Savings Fund, this Kotak Gold Savings Fund will invest in single Gold Based ETF from its own fund house. Reliance Gold Savings Fund will invest its money in Reliance Gold ETF and Kotak Gold Savings Fund will invest the money in Kotak Gold ETF. So in essence, they are fund of single funds, which doesn't really make any special sense to me. As mentioned in the final thoughts about Reliance Gold Savings Fund (See Review & Details), I would prefer directly investing in the underlying ETF rather than taking the Fund of (Single) funds route.
What this Kotak Gold Savings Fund will do is it will collect money from common investors, then push that money to invest in the Kotak Gold ETF. This Kotak Gold ETF will then in turn invest your money in physical gold. So your invested money in Kotak Gold Savings Fund will ultimately reach Kotak Gold Exchange Traded Fund.

What are the advantages of this 2 level investment setup in Kotak Gold Savings Fund?
There are a few advantages that Kotak Gold Savings Fund offers which the Kotak Gold ETF does not:
1) The SIP investments in Kotak Gold Savings Fund can be as small as 100 Rs. This appears to be advantegous since you cannot buy physical gold for just Rs. 100. Even the Gold based ETF units will cost more than that. Hence this Kotak Gold Savings Fund offers a good option for small investors who want to invest in gold.
2) You dont need a demat account for Kotak Gold Savings Fund. However, a demat account is necessarily required for Kotak Gold ETF or Reliance Gold ETF. So for investors who are still pen and paper based, this Kotak Gold Savings Fund might be good.

One more thing - if you believe that all your money (100%) will go towards Gold ETF investment, then it is not true. As per the details available, Kotak Gold Savings Fund will invest 90-95% of the money into Kotak Gold ETF, rest 5-10% will be held in Fixed Deposits, and other liquid short term money market instruments for redemption requirements. So there comes the tracking error issue.

The minimum application amount for Kotak Gold Savings Fund is Rs. 5000 and afterwards in multiples of Rs. 1.

Kotak Gold Savings Fund Entry Load: Nil
Kotak Gold Savings Fund Exit Load: 2% if exit within six months; After six months it will be 1%

What are the other competitor products available in comparison to Kotak Gold Savings Fund?
The recently lauched Reliance Gold Savings Fund (See Review & Details) is the biggest and direct competitor to Kotak Gold Savings Fund - the two products from Kotak and Reliance Fund houses work in almost the same way.
Other than that, there are a lot of Gold based ETF's and Gold based Mutual Funds available:
List of Gold ETF India available for trading on NSE

Recently, HDFC came out with HDFC Gold ETF NFO: Review Analysis & Details

Then there is the good old Quantum Gold Fund (Gold ETF)

and ICICI Prudential Gold ETF, then SBI GETS-SBI Gold ETF NFO Review: SBI Gold Exchange Traded Scheme

If you are interested in looking at how Gold prices have performed historically, see Gold ETF: Historical Performace of Gold ETF

Final Thoughts about Kotak Gold Savings Fund?
I still recommend taking the ETF route, as that offers intra-day price changes and not just the end of the day NAV calculation dependency. However, if investors who still want to apply the pen and paper way, or investors who want SIP with just 100 Rs. monthly investments in gold, they can go for Kotak Gold Savings Fund