Introduction

The Association of Mutual Funds in India (AMFI) has recently launched three major initiatives aimed at increasing accessibility to mutual fund investments, enhancing financial literacy, and facilitating the retrieval of forgotten investments. These initiatives, namely Chhoti SIP, Tarun Yojana, and MITRA, are set to transform the landscape of mutual fund investing in India by making it more inclusive, investor-friendly, and transparent. With these programs, AMFI aligns itself with the Securities and Exchange Board of India (SEBI) to democratize mutual fund investments, ensuring that they reach a wider and more diverse population.

Venkat Chalasani, AMFI’s Chief Executive, emphasized the crucial role of mutual funds in shaping India’s financial future. He stated that these initiatives would encourage more individuals to start investing while providing essential tools to improve transparency, security, and ease of access to mutual fund investments. SEBI Chairperson Madhabi Puri Buch also praised these initiatives, reinforcing their importance in broadening and deepening India’s financial markets.

About AMFI

The Association of Mutual Funds in India (AMFI) is the regulatory organization for mutual funds in India. Established in 1995, AMFI is a non-profit industry body that aims to promote transparency, best practices, and investor awareness in the mutual fund sector. It works closely with the Securities and Exchange Board of India (SEBI) to ensure that Asset Management companies operate within regulatory guidelines, maintaining fair and ethical investment practices.

Objectives of AMFI:

• Ensure that mutual funds adhere to high ethical and professional standards.
• Promote investor awareness and education about mutual funds.
• Represent the industry’s interests to regulators and policymakers.
• Work towards improving the mutual fund ecosystem in India.

As the nodal agency for the industry, AMFI plays a pivotal role in making investment products more accessible and investor-friendly. Through various campaigns, such as ‘Mutual Funds Sahi Hai’, AMFI has significantly contributed to the rise of retail participation in mutual fund investments over the years.

1. Chhoti SIP: Making Mutual Fund Investments Affordable and Accessible

What is Chhoti SIP?

Chhoti SIP is a groundbreaking initiative that allows investors to start a Systematic Investment Plan (SIP) with just Rs 250. This program is designed specifically for new investors and underserved groups who may not have had access to MF investments due to high entry barriers.

Why is Chhoti SIP Important?

1. Encourages First-Time Investors: Many individuals hesitate to invest in mutual funds due to high minimum investment requirements. A Rs 250 SIP makes MFs investments more approachable for first-time investors.
2. Promotes Financial Inclusion: The initiative primarily targets low-income groups, rural investors, and those without prior investment experience, helping bridge the financial inclusion gap in India.
3. Encourages Regular Savings: By promoting disciplined investment habits, Chhoti SIP ensures that even small savers can systematically grow their wealth over time.

Impact of Chhoti SIP on the Indian Economy and Stock Market

• Higher Retail Participation: With more investors entering the mutual fund space, liquidity in equity and debt markets will improve.
• Stronger Domestic Investment Base: A broader investor base helps reduce dependency on foreign institutional investments.
• Long-Term Wealth Creation: Encouraging small investments fosters a culture of long-term wealth accumulation, benefiting the overall economy.

2. Tarun Yojana: Introducing Financial Education in Schools

What is Tarun Yojana?

Tarun Yojana aims to integrate financial literacy into school curricula, providing students with foundational knowledge about investments, mutual funds, and personal finance management.

Why is Tarun Yojana Important?

1. Early Financial Education: Teaching children about financial planning, investments, and risk management from a young age prepares them for a secure financial future.
2. Bridging the Knowledge Gap: Many adults lack basic financial literacy. Educating students at an early stage ensures that future generations make informed financial decisions.
3. Encouraging Long-Term Investing: Young investors who understand MFs and the stock market early on are more likely to invest for the long term, leading to stable economic growth.

Impact of Tarun Yojana on the Indian Economy and Stock Market

• Increased Investor Awareness: As financially literate individuals enter the workforce, they are more likely to invest in MFs and equities.
• Stronger Retail Investor Base: Educated investors contribute to a more resilient and well-informed market ecosystem.
• Reduced Financial Mismanagement: Early education can prevent poor financial decisions, reducing loan defaults and bad debts.

3. MITRA: Mutual Fund Investment Tracing and Retrieval Assistant

What is MITRA?

MITRA is an innovative digital platform that helps investors and their heirs identify and reclaim dormant or forgotten investments. It ensures that rightful owners can access and benefit from their investments.

Why is MITRA Important?

1. Recovering Lost Investments: Many investors forget about their mutual fund holdings over time. MITRA helps track these investments and ensures they are not lost.
2. Easier Wealth Transfer: Families often struggle to claim a deceased person’s mutual fund holdings due to lack of documentation. MITRA simplifies this process.
3. Transparency and Security: By streamlining the retrieval process, MITRA ensures that investments remain secure and accessible to rightful beneficiaries.

Impact of MITRA on the Indian Economy and Stock Market

• Boosts Investor Confidence: The assurance that investments will not be lost encourages more people to invest in mutual funds.
• Enhances Market Stability: Recovered investments can be reinvested, contributing to market liquidity and stability.
• Strengthens Financial Planning: Investors are more likely to maintain records and engage in systematic planning when they know retrieval processes exist.

Conclusion

AMFI’s three initiatives—Chhoti SIP, Tarun Yojana, and MITRA—mark a significant step towards making mutual fund investments more accessible, transparent, and investor-friendly. These programs not only encourage new and small investors to participate in financial markets but also ensure that financial literacy is imparted from a young age and that lost investments are recovered efficiently. By bridging the gap between financial awareness and investment accessibility, these initiatives have the potential to transform India’s financial landscape and empower millions of retail investors.

With growing retail participation, a well-informed investor base, and enhanced financial security, AMFI’s efforts align perfectly with India’s vision of becoming a financially inclusive and robust economy. Investors, both new and experienced, can look forward to a future where mutual fund investments are easy, secure, and rewarding.

The Groww Gold ETF Fund of Funds (FOF) – Direct (G) is a mutual fund scheme that invests exclusively in gold-backed Exchange-Traded Funds (ETFs). By offering easy access to gold, this fund allows investors to benefit from it’s price movements without the inconvenience and costs associated with holding physical gold. It serves as an excellent financial product for hedging, diversification, and tax planning within an investment portfolio. 

Key Details and Features 

This open-ended fund was launched as part of the NFO (New Fund Offer) on October 16, 2024, with a closing date of October 30, 2024. Investors can start investing with as little as ₹1,000, and redemptions come without an entry load. If redeemed within 30 days, there is a 1% exit load, which encourages long-term holding to gain the full benefit of gold’s value appreciation.

The benchmark for this fund is domestic gold prices based on the London Bullion Market Association (LBMA) spot rates, offering a reliable measure of performance. The fund is managed by Mr. Wilfred Gonsalves, an experienced fund manager known for his expertise in commodity investments.

 How the Fund Helps with Tax Saving 

Though gold itself is not traditionally associated with direct tax benefits, investing through this fund opens avenues for tax efficiency:

1. Capital Gains Taxation: 

The recent amendments to the capital gains taxation rules for Gold ETFs introduce new holding periods and tax rates, which will affect both short-term and long-term investors. Here are the key changes:

A)   Short-Term Capital Gains (STCG):

   – Old Rule: Gains from units sold within 3 years were taxed at the investor’s income tax slab rate (10%, 20%, or 30%).

   – New Rule: 

     – Transition Period (April 1, 2023 – March 31, 2025): Units sold before 12 months are taxed at the income tax slab rate.

     – Post-Transition Period: Gold ETFs bought after March 31, 2025, and sold before 12 months will continue to attract slab-based taxation.

B) Long-Term Capital Gains (LTCG):

   – Old Rule: Units held for more than 3 years were taxed at 20% with indexation benefit.

   – New Rule: Now, LTCG on units held for 12 months or more will be taxed at 12.5%, but without the benefit of indexation.

C) Impact on Investors:

   – Short-term investors: May face higher taxes due to the shorter 12-month threshold.

   – Long-term investors: Benefit from the lower 12.5% tax rate, but the removal of indexation may reduce inflation-adjusted gains.

D) Portfolio Strategies:

   – Hedging with equity ETFs or bonds can reduce volatility, and diversifying with Gold ETFs strengthens portfolio stability during market downturns or currency fluctuations.

In summary, the new rules incentivize long-term investments but may increase the tax burden for short-term holders. Investors need to adapt their strategies by aligning with these changes to optimize their returns.

E) No Wealth Tax: 

   Holding gold in physical form attracts wealth tax in some cases. However, investing through this fund avoids these complications, providing a tax-friendly alternative to owning gold directly.

F) Tax-Free Transfers Between Funds: 

   Investors can switch between different ETF-based funds or allocate investments across other Groww FOFs without triggering immediate taxation, helping them manage their tax outflows effectively.

Hedging Against Market Volatility and Inflation 

Gold has a long-standing reputation as a safe-haven asset, especially during economic uncertainties, stock market crashes, or currency depreciation. This fund allows investors to hedge their portfolios by adding an asset with a negative or low correlation to equities.

1.    Protection from Inflation: 

   When inflation rises, currency value declines, but this yellow metal generally retains or appreciates in value. By allocating part of their portfolio to this fund, investors can safeguard their purchasing power during inflationary periods.

2. Risk Management During Market Downturns: 

   Gold often outperforms equities during times of market stress. For instance, during global financial crises, it’s prices surge as investors shift their capital from riskier assets to safe-haven instruments. This fund provides a cushion for portfolios, ensuring they remain stable even in turbulent times.

3. Currency Risk Management: 

   Since gold prices are influenced by the global currency markets, particularly the USD-INR exchange rate, this fund helps offset risks when the rupee depreciates. A fall in the Indian currency boosts gold’s domestic price, leading to gains in the fund.

Diversification Benefits of Gold ETFs 

This Fund of Funds product aligns perfectly with the principle of diversification, ensuring investors reduce the overall risk of their portfolios:

 

1.    Diversifying Across Asset Classes: 

   Adding this yellow metal to a portfolio that already contains equities, debt instruments, and fixed-income products helps achieve non-correlation. This ensures that when one asset class underperforms, the others compensate, smoothing overall returns.

2. Geographical Diversification: 

   While most investments in India are concentrated in domestic assets, gold is influenced by global factors like geopolitical tensions and international monetary policies. By investing in gold ETFs through this fund, investors can gain indirect exposure to global markets without the complexity of cross-border investments.

3. Sectoral Risk Mitigation: 

   Portfolios dominated by sector-specific mutual funds (e.g., IT or banking) can become vulnerable to sector-wide downturns. Allocating to this ETF balances such risks by offering exposure to a different commodity-based sector.

Advantages Over Physical Gold and ETFs 

This fund provides a number of practical advantages over physical gold and standalone gold ETFs: 

1.    Lower Cost and Storage Convenience: 

   Investors avoid the costs associated with buying and storing it physically, such as vault fees, insurance, and making charges. 

 

2. Professional Management: 

   The fund is managed by experienced professionals, ensuring optimal performance in line with gold prices. It eliminates the need for individual tracking and trading of gold ETFs. 

3. No Demat Account Requirement: 

   Unlike ETFs, which require a Demat account, investors can access this market through this fund with minimal paperwork. This makes it more convenient for first-time investors or those without a Demat account.

 Conclusion: Why this fund is a Valuable Investment 

This fund is an excellent addition to any portfolio for those looking to benefit from gold’s stability, inflation-hedging properties, and diversification benefits. With the potential for capital gains tax efficiency through indexation, it also provides a smart way to optimize tax liabilities.

By investing in this fund, investors gain the dual advantage of professional management and hassle-free access to yellow metal’s price movements without needing a Demat account or worrying about physical storage and safety. For individuals aiming to balance their portfolios, hedge against inflation, or diversify into commodities, this fund stands out as a convenient, low-cost, and tax-efficient solution.

 FAQs

1.     What is the Groww Gold ETF Fund of Funds (FOF)? 

This is an investment product that provides exposure to gold by investing in units of Gold Exchange Traded Funds (ETFs), allowing investors to benefit from gold’s performance without holding physical gold.

1.     What are the key details of the NFO? 

– Open Date: October 16, 2024 

– End Date: October 30, 2024 

– Minimum Investment: ₹1,000 (with multiples of ₹1 thereafter) 

– Entry Load: Nil 

– Exit Load: 1% if redeemed within 30 days; Nil after 30 days 

2.     What is the investment objective of the fund? 

The fund aims to provide returns that align with the performance of the Groww Gold ETF, though it does not guarantee this outcome.

4. Why should I invest in this fund? 

Investing in this fund offers several advantages, including a hedge against inflation, portfolio diversification, low entry barriers, cost efficiency, and high liquidity.

5. What are the risks associated with investing in this fund?

 

Key risks include the price volatility of this metal, the absence of interest or dividends, potential tracking errors, currency risk, and concentration risk due to its focus on gold.

6. Who manages the fund? 

The fund is managed by Mr. Wilfred Gonsalves, who oversees the selection and investment in top-performing ETFs.

7. Do I need a demat account to invest in this fund? 

No, this fund does not require a demat account, simplifying the investment process for retail investors.

8. What is a Fund of Funds (FOF)? 

A Fund of Funds is an investment scheme that invests in other mutual funds rather than directly in securities. This fund specifically invests in Gold ETFs, providing investors with diversified exposure to gold.

9. How does this fund provide diversification? 

While it primarily focuses on gold, investing in a Fund of Funds allows exposure to different gold ETFs, which may have varying strategies and asset holdings, thus reducing the risk associated with any single ETF.

10. What is the benchmark for this fund? 

The benchmark for this fund is the domestic price of gold, based on the London Bullion Market Association (LBMA) gold daily spot fixing price.

11. How often can I redeem my investment in this fund? 

Investors can redeem their units at any time, providing high liquidity. However, exit loads apply if redeemed within 30 days from the date of allotment.

12. Are there any tax implications for investing in gold ETFs through this fund? 

Yes, investments in this may be subject to capital gains tax. Long-term capital gains (held for more than 36 months) are typically taxed at 20% with indexation benefits, while short-term gains are taxed at the investor’s applicable income tax rate.

13. Can I invest in this fund through a systematic investment plan (SIP)? 

Yes, investors can choose to invest in this fund through a SIP, allowing for regular and systematic investments over time.

14. What happens if I want to sell my units before the exit load period ends? 

If you redeem your units within 30 days of allotment, a 1% exit load will be applicable. After this period, you can redeem without any exit load.

15. What is the role of the fund manager? 

The fund manager is responsible for making investment decisions, selecting the underlying Gold ETFs, and managing the fund’s portfolio to ensure it tracks gold prices effectively.

16. How can I track the performance of this fund?

Investors can track the performance of the fund through its Net Asset Value (NAV), which is published daily, as well as through performance reports available on financial news platforms or the Groww app.