1.) Gold ETF’s have a haircut of 20% whereas Gold MF’s have a haircut of 9%. Since Most of the Gold MF’s invest in their own Gold ETF’s, then why the difference in haircut?
2.) What is the Criteria for a security to be eligible as collateral?
3.) Is it likely for Zerodha GOLDCASE to become eligible soon? What criteria does it currently not meet?
A related point - The expense ratio of gold mutual fund is lower than that of Gold ETF. But saw this video - See the time stamp 9.22, Gold mutual fund expense ratio is not what they display but it is combined of mutual fund + ETF rate.
Strange.
I could be wrong but this is my view.
Gold mutual funds are valued based on their NAV and this NAV is close to their fair value so a lower % haircut.
Gold ETFs are traded on the exchange, and they mostly tend to trade at a premium to their INAV, so maybe to compensate for that premium, they have increased the haircut % for the ETF.
Most Gold Mutual funds hold their own Gold ETF’s. The ETF’s meet SEBI’s new strict criteria of minimal impact cost, trading volume etc which is why they are eligible to be collateral. Regardless, the tracking error of Gold ETF’s over a 1yr period is 1% or less. So, there must be some other reason.
Yes, it is mentioned in the fund’s factsheet that the expense ratio of the gold mutual fund is in addition to the expense ratio of the underlying holding (gold etf). So if gold etf expense ratio 0.5% and gold mutual fund expense ratio is 0.15%, then Total expense ratio for mutual fund holder will be 0.65%. This is always the case with fund of funds (in this case fund holding an ETF).
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I did not know that Gold Mutual Fund was a FOF. Could be all Mutual fund investing in Gold is a FOF. This clarifies my doubt. I thought this FOF thing was only when you invest in overseas stocks like Motilal Oswal Nasdaq 100 etc
Its not classified as a FoF. Because the underlying is not another mutual fund but an ETF. That is why I wrote in brackets (a fund holding an ETF). Since the holding of the fund is one type of security (a gold etf) its not a FoF in the traditional sense but one can think of it in that way to understand the basic structure and the Total expense ratio.