New Fund Offer - SBI Gold ETF Fund

Gold as an asset class has emerged as a preferred investment avenue over the last one year when equity markets have been down and out across the globe. It is not surprising then to find that this is the sixth fund in the Gold ETF category.
Objective: The objective of the fund is to seek to provide returns that closely correspond to returns provided by the price of gold through investment in it as a physical entity. Post NFO, the units will get listed on the NSE.
Strategy: The fund will invest in gold and gold bullion. The ETFs are passively managed funds that track the performance of its underlying asset and in this case, it is gold. However, the performance of the scheme may differ from that of the underlying asset due to tracking errors. Generally, returns of different ETFs are similar, the underlying asset being the same. However in case of ETFs, the tracking error and the expense ratio are the crucial elements that need to be compared. This is evident from the performance table of the Gold ETF category in the last one year.
Fund Manager, AMC Performance:
Ritesh Sheth will manage this scheme and at SBI AMC he manages five active funds. However, out of these five funds, only the balanced fund has managed to beat the category returns in the long run. This being a passive fund, Ritesh will have a very limited task on hand.
Suitability, Recommendation:
However, the prevailing concern is the performance of gold as an asset class in the coming period. Despite being the largest consumer of gold, India’s import of gold in February and March 2009 was zero. And the situation across the world was identical, thus implying that higher prices have started affected the demand. Meanwhile, the current rally in gold seems mainly on account of investments rather than consumption. Thus our recommendation is that you should skip this fund.