Usage of Gold & Silver has been the one common thing across empires and continents. These two coveted precious metals have virtually outlasted every civilisation or economic system. India is one of the largest markets of gold in the world, and more than 75% of Indian households own Gold and Silver in some form.
Indian households purchase Gold and Silver on auspicious events; with rising affluence, demand for gold is increasing in India. The demand for silver is growing in tandem; apart from investment, jewellery & silverware, Silver has major industrial applications, including green technologies. However, instead of buying Gold and Silver in physical form, which invariably contains impurities, risk of storage etc., you should invest systematically in Gold and Silver ETFs. In the long run, both Gold and Silver provide a good hedge against inflation and can be used for asset allocation purposes.
Gold and Silver have a 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 due to higher industrial demand during that period. Investing in Gold and Silver funds helps save a lot of costs & mitigates risks; it also provides a cushion to your portfolio during market uncertainty.
Motilal Oswal Mutual Fund has launched India’s 2nd precious metals combination fund after Edelweiss Mutual Fund, which provides investors exposure to both Gold and Silver under a single scheme. Motilal Oswal Gold and Silver ETFs Fund of Funds is an open-ended fund of funds scheme investing in Gold and Silver ETFs units.
Commenting on the launch of this fund, Mr Navin Agarwal, MD & CEO of Motilal Oswal Asset Management Company Ltd., said, “Gold and Silver have been preferred assets for Indian households for ages. These precious metals had been acquired and kept in their physical forms. However, we are witnessing high inflation around the world. Central banks across have resorted to rate hikes and neutral system liquidity to tackle the runaway inflation. Gold is a hedge against inflation, protects against the erosion of wealth, and acts as a store of value in such times. Even the world’s elite turn to precious metals to protect their fortunes, as both metals never lose their value. We are at an interesting juncture as the advanced economies of the US and Europe are at risk of slipping into a recession whereas India is showing very growth prospects.”
Table 1: Details of Motilal Oswal Gold and Silver ETFs Fund of Funds
| Type | An open-ended fund of funds scheme investing in units of gold and silver exchange-traded funds. | Category | Fund of Funds |
| Investment Objective | The objective of this scheme is to generate returns by investing in units of Gold ETFs and Silver ETFs. However, the performance of the scheme may differ from that of the underlying gold and silver ETFs due to tracking errors of the underlying exchange-traded funds. There can be no assurance or guarantee that the investment objective of the scheme would be achieved. | ||
| Min. Investment | Rs 500/- and in multiples of Re 1 thereafter. | Face Value | Rs 10/- per unit |
| Plans |
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Options |
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| SIP/STP/SWP | Available | ||
| Entry Load | Not Applicable | Exit Load |
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| Fund Manager | Mr Abhiroop Mukherjee | Benchmark Index | LBMA Price of Gold and Silver |
| Issue Opens: | September 26, 2022 | Issue Closes: | October 07, 2022 |
(Source: Scheme Information Document)
The investment strategy for Motilal Oswal Gold and Silver ETFs Fund of Funds will be as follows:
Motilal Oswal Gold and Silver ETFs Fund of Funds aims to invest in a mix of Gold ETFs and Silver ETFs. The scheme endeavours to maintain equal allocation between Gold ETF and Silver ETF and rebalance it periodically. ETFs will be selected based on liquidity on the exchange, tracking error, and other relevant factors. The scheme will be priced based on the closing price of the underlying ETFs on the exchange.
The investment strategy is to uphold a higher allocation to gold; the scheme will endeavour to maintain a 70:30 allocation by investing in units of Gold and Silver ETFs. Since Motilal Oswal MF doesn’t have its silver or gold ETF, the scheme will invest in units of other fund houses. Based on various macro/technical/fundamental factors, the fund managers shall decide on allocation towards units of Gold ETFs and/or Silver ETFs.
For gold, the fund house has highlighted schemes such as ICICI Prudential Gold ETF, Nippon India ETF Gold BeES, SBI-ETF Gold and Kotak Gold ETF and HDFC Gold Exchange Traded Fund. For silver, it mentioned ICICI Prudential Silver ETF, Nippon India Silver ETF and Aditya Birla Sun Life Silver ETF. Apart from the above-mentioned gold ETFs and silver ETFs, the scheme may invest in units of ETFs having similar investment objectives, investment strategy and asset allocation etc.
A small portion of the net assets will be held as cash or will be invested in debt and money market instruments permitted by the SEBI/RBI, including TREPS or in alternative investment for the TREPS as may be provided by the RBI, to meet the liquidity requirements under the scheme.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for Motilal Oswal Gold and Silver ETFs Fund of Funds
| Instruments | Indicative Allocations (% of Net Assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Units of Gold ETFs & Silver ETFs | 95 | 100 | Moderately High |
| Units of liquid Scheme/ debt schemes, Debt and Money Market Instruments | 0 | 5 | Low |
(Source: Scheme Information Document)
About LBMA (London Bullion Market Association) Precious Metal Prices
The London Bullion Market Association is the international trade association representing the global OTC (Over Counter) bullion market for precious metals such as gold and silver. LBMA is associated with miners, investors, fabricators, ETFs, refiners, manufacturers, consumers, and central banks worldwide. It serves as a point of contact for regulators, investors, and clients, and, most importantly, it is the voice of the global precious metals market.
The domestic price of Gold and Silver is derived from the LBMA AM fixing prices, as there is no publicly available index which tracks the price of Gold and Silver bullion and instruments with Gold and Silver as underlying. The Trustees reserve the right to change the benchmark in future if a benchmark better suited to the investment objective of the scheme is available.
Who will manage Motilal Oswal Gold and Silver ETFs Fund of Funds?
The designated fund manager for this scheme will be Mr Abhiroop Mukherjee. He holds B. Com (Honours) and PGDM (Finance) degrees and has an overall experience of 13 years in Fixed Income Securities trading and fund management. He joined Motilal Oswal AMC in May 2011 and is currently working as Associate Vice President – Fixed Income. Prior to this, he was associated with PNB Gilts Ltd. as Assistant Vice President – Fixed Income.
At Motilal Oswal Mutual Fund, Mr Mukherjee currently manages Motilal Oswal Ultra Short Term Fund, Motilal Oswal Liquid Fund and Motilal Oswal 5 Year G-Sec Fund of Fund. For Debt Component – Motilal Oswal Focused 25 Fund, Motilal Oswal Midcap 30 Fund, Motilal Oswal Flexicap Fund, Motilal Oswal Long Term Equity Fund, Motilal Oswal Dynamic Fund and Motilal Oswal Nasdaq Fund of Fund, Motilal Oswal Equity Hybrid Fund, Motilal Oswal S&P 500 Index Fund, Motilal Oswal Asset Allocation Passive Fund of Fund – Conservative and Motilal Oswal Asset Allocation Passive Fund of Fund – Aggressive, Motilal Oswal MSCI EAFE Top 100 Index Fund, Motilal Oswal NASDAQ Q 50 ETF, Motilal Oswal Large and Midcap Fund, Motilal Oswal Multi Asset Fund, Motilal Oswal Nifty 200 Momentum 30 ETF, Motilal Oswal Nifty 200 Momentum 30 Index Fund, Motilal Oswal S&P BSE Low Volatility Index Fund, Motilal Oswal S&P BSE Low Volatility ETF, Motilal Oswal S&P BSE Financials ex Bank 30 Index Fund, Motilal Oswal S&P BSE Enhanced Value Index Fund, Motilal Oswal S&P BSE Quality Index Fund, and Motilal Oswal S&P BSE Healthcare ETF.
Fund Outlook – Motilal Oswal Gold and Silver ETFs Fund of Funds
Motilal Oswal Gold and Silver ETFs Fund of Funds will invest in units of Gold ETFs and Silver ETFs. However, the scheme’s performance may differ from the underlying Gold and Silver due to tracking errors of the underlying exchange-traded funds.
The scheme provides investors with exposure to Gold and Silver, the precious metals. Gold & Silver compliments each other, provide a hedge against inflation, and offer a good balance to your portfolio. Gold and Silver have shown a low correlation with equities and hence, offer better diversification. While Gold has huge household demand, silver has huge industrial demand & is used in products like smartphones, solar panels, electric vehicles, etc.
Both metals have outlived every civilisation, and the wide array of applications will lead to a rise in demand. The Fund of Funds structure offers investors more convenience, affordability, & liquidity as compared to physical Gold & Silver. Equal allocation & periodic rebalance can absorb short-term fluctuations in the performance of gold and silver.
However, do note that Gold and Silver prices may have a high correlation, but their dynamics are different. Gold has traditionally been driven by safe-haven demand, whereas silver has been driven by industrial demand. Both prices move in similar directions, but gold is better insulated during economic slowdowns, and silver isn’t (due to its uses in industries). Silver is more volatile than gold since it is an industrial metal. Gold has often shown a sharper negative correlation with economic growth, while silver has a positive but moderately weak correlation to the same.
Additionally, the persistent repercussions of the geopolitical tensions, spiralling inflation and the RBI’s recent announcement to hike policy rates again by 50 basis points to curb demand and control inflation may cause a significant risk to economic growth and keep the commodity market volatile in the near term. These factors, among others, may affect the scheme’s performance, and the scheme may face intensified volatility in the near term.
Thus, Motilal Oswal Gold and Silver ETFs Fund of Funds is a high-risk strategy suitable for experienced investors who understand precious metals or commodities cycles. Ensure you have a high-risk appetite, a long investment horizon to benefit from the future potential of gold and silver, and that your investment objectives align with the fund.
This article first appeared on PersonalFN here
