Principal Precious metal fund is a fund of funds scheme, which means this fund will hold units of other mutual funds and ETFs. In the case of this fund, it will hold only other ETFs.
As the name suggests this is focused on metals such as gold and silver. This fund will primarily invest in Indian and foreign Gold ETFs and silver ETFs. I do not know of any Indian silver ETFs, so I think at least the silver ETF part would be composed entirely of foreign silver ETFs.
Exit load and Minimum subscription amount of Principal Precious Metal Fund
If you redeem your units within one year of subscription, then you will be charged a 1% exit load. The minimum subscription amount for the fund during the NFO is Rs.5000.
There will be a dividend and growth option, and the default option will be the growth option. So, if you don’t indicate which scheme you wanted to subscribe to, — you will get the growth option by default.
This fund will also be available for setting up a Systematic Investment Plan (SIP).
Asset allocation of Principal Precious Metal Fund
The indicative asset allocation is as follows:
| Type of instrument |
Minimum Allocation |
Maximum Allocation |
| Gold ETFs – Indian and / or foreign |
65 |
100 |
| Silver ETFs -Â Indian and / or foreign |
0 |
35 |
| Debt or money market securities and schemes of mutual funds that invest in these |
0 |
10 |
As you can see, the main focus of the fund will be to invest in gold ETFs, and the next biggest allocation is for silver ETFs.
Some Risks
In addition to the regular risks facing funds, this one faces exchange rate risk too because it plans to buy securities in the overseas markets.
So far, all ETFs that track gold in India actually hold physical gold as their underlying assets. However, some Gold ETFs abroad don’t hold actual gold, but create derivative contracts that are supposed to track the price of gold. Indian investors should keep in mind that even though they are buying a precious metal fund, they face an extra risk because some of these funds may not hold real gold, and be composed of derivatives contracts that track gold or silver.
The total annual recurring expenses of this fund are expected to be 0.75% of weekly average net assets. Since this is a fund of funds, this expense is charged to you over and above the expenses of the underlying funds.
With gold and silver rallying the way they are, it is not surprising to see new funds throwing their hat in the precious metal ring. I’d personally, much rather buy gold ETFs and silver coins directly if I was interested in this kind of thing, (instead of paying fee for a fund of funds) but that’s just me.
Disclaimer: This is just a summary of this fund, and my personal preference, not investing advice tailored to your specific situation.
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