Gold ETFs have been the best performing category

Gold ETFs have been the best performing category of funds over a one year as well as one-month period. Gold ETFs have delivered a handsome 25 per cent return in one year whereas in the same period, diversified equity funds as a category have seen a value erosion of 49 per cent. Had one invested in Gold ETFs just a month back, they would have got a 14-per cent return; an investment in equity funds during the same period, however, would have delivered a negative return of 1 per cent.

Higher buying interest in gold ETFs came on the back of spot prices of domestic gold going above Rs15,000/gm. International prices hover at $961 per ounce (a 7-month high). Higher global gold prices, combined with the rupee traversing below the 49 mark to a dollar, helped the surge in domestic gold prices and ETFs.

Gold ETFs rise to record high

Gold ETFs hit a new high on Indian bourses on Tuesday even as the equity markets slid further, on lingering disappointment over the Interim Budget.

GoldBEES, Benchmark Mutual Fund’s gold ETF touched its life time high of Rs 1,504 on the National Stock Exchange and closed at Rs 1,503 per unit. Relgold (Reliance’s Gold ETF) and Goldshare (UTI MF) too touched new highs at Rs 1,466 and Rs 1,498.50 respectively.

Volumes too were higher on all gold ETF counters. The number of units traded (Gold Benchmark ETF, Kotak Gold ETF, Quantum Gold, UTI Gold ETF and Reliance Gold ETF) were at twice the average volumes recorded last week. Volume in GoldBEES, the most popular of the lot, surged to 52,280 units when the average volume last week was just 24,000 units.

Higher buying interest in gold ETFs came on the back of spot prices of domestic gold going above Rs15,000/gm. International prices hover at $961 per ounce (a 7-month high). Higher global gold prices, combined with the rupee traversing below the 49 mark to a dollar, helped the surge in domestic gold prices and ETFs.

Advantages of GETFs ?

• No risk of holding physical stock: As GETFs are issued in demat form, the risk associated with holding physical gold is reduced considerably.
• Affordable: GETFs are ideal for small retain investors as they can buy a just one unit from the exchange. The minimum amount of investment during the NFO period for Cash is Rs 10,000 and in multiples of Rs 1,000 thereafter. One unit of the fund will represent one gram of gold.
• High Liquidity: GETFs can be easily bought / sold like any other stock on the exchange during market hours at real-time prices as opposed to end of day prices.
• Lower cost: GETFs enjoy the benefits of lower cost and higher transparency. As they are listed on the exchange, costs of distribution are much lower. Further, exchange traded mechanism helps reduce minimal collection, disbursement and other processing charges. Gold futures include the cost of carry that will be absent on a GETF.
• Low tracking error: Tracking Error of GETFs is likely to be low as compared to a normal fund. Due to the creation / redemption of units only through in-kind mechanism the fund can keep lesser funds in cash. Also, time lag between buying / selling units and the underlying physical gold is much lower.

Gold exchange-traded funds

A gold-exchange traded fund unit is like a mutual fund unit backed by gold as the underlying asset and would be held mostly in demat form. An investor would get a securities certificate issued by the mutual fund running the Gold-ETF defining the ownership of a particular amount of gold. GETFs are designed to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell through trading of a security on a stock exchange.
With gold being one of the important asset classes, GETFs will provide a better, simpler and affordable method of investing as compared to other investment methods like bullion, gold coins, gold futures, or jewellery.