How inflation can erode your wealth?

"Inflation is one of the biggest threats to your investments. It is like a crack in a water tank. It can erode the value of your money without your knowledge. Current inflation rate in India is 10%. That means the value of your money comes down 10% every year. To beat inflation, one has to invest in an asset which gives more that 10%. Keeping in mind the risk, not keeping all the eggs in one basket, doing proper asset allocation can beat inflation. "

What is Gold ETF?

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Indians are crazy about gold and it is considered as a safe heaven in terms of investment. India is the largest consumer of gold in the world. 10 grams of gold was Rs.88 in 1947 and now it is above Rs.27000. From 1947 to 2010 gold has given average annual returns of approximately 9.4%. Gold is one of the important asset classes. Traditionally people used to buy physical gold in the form of jewellery, gold coins, gold bars etc, but now a new avenue for buying gold in demat form has opened in the form of gold ETF. People believe that buying gold on Akshaya Tritia or Dhanteras day is auspicious and lucky. Instead of buying gold in physical forms such as gold coins or as jewellery one should buy it in DMAT format in the form of Gold ETF units.


Indians are crazy about gold and it is considered as a safe heaven in terms of investment. India is the largest consumer of gold in the world. 10 grams of gold was Rs. 88 in 1947 and now it is above Rs. 27000. From 1947 to 2010 gold has given average annual returns of approximately 9.4%. Gold is one of the important asset classes. Traditionally people used to buy physical gold (in the form of jewellary gold coins, gold bars etc) , but now a new avenue for buying gold in demat form has opened in the form of gold ETF. People believe that buying gold on Akshaya Tritia or Dhanteras day is auspicious and lucky. Instead of buying gold in physical forms such as gold coins or as jewellery one should buy it in DMAT format in the form of Gold ETF units.


If you don't have a DMAT or trading account don't worry, the process is simple and your neighbourhood public sector or private bank will gladly provide all the information required to open one. Don't have time? Think about the old age proverb no pain no gain. Since purchasing gold is your interest should you be doing it?


Exchange Traded Funds are registered investment companies. Some of the ETFs launched recently are Gold ETFs. One can invest in gold ETF like in shares. It is traded on the stock exchanges like NSE or BSE. These ETFs actually invest in physical gold. The objective of the scheme is to generate returns that are in line with the returns on investment in physical gold. It provides an option to invest in gold without taking physical delivery of gold. One can buy and sell units in small quantities, as low as one unit, which is approximately equivalent to one gram of gold. The purity is 99.5 per cent or higher.


India is the largest consumer of gold in the world. 10 grams of gold was RS. 88 in 1947 and now it is above Rs. 27000. From 1947 to 2010 gold has given average annual returns of approximately 8.9%. Gold is one of the important asset classes. This is just about enough to beat the average inflation of around 7% in India. There are multiple ways of investing in gold. Which method you choose depends on your preferences, comfort level. But, if you are looking for a hands off approach then gold ETFs is one of simplest ways for retail investor to purchase gold.


Does it beat the historical returns of equities in India? No. The average returns of equities have been nearly 15% vs nearly 8% in Gold.


Historical performance is no guarantee for future performance. Read all the documents related before investing.

Ways to Invest in Gold

1)Purchase physical gold in forms of bars, biscuits, coins and jewelry represt the oldest method of investing in gold. Finding safe storage of physical gold is hard and ownership hard to trace. Investors purchase pay making charges, wastage charges. Gold coins are being sold by Banks and post offices. But Banks and post offices do not repurchase gold coins from you.
2)Gold Exchange traded funds. Where you purchase gold virtually in form of gold ETF units. You can find more information on gold ETFs follows.
3)Gold Futures is risky and not for everyone. But, it allows one to short gold and benefit from falling gold prices. Physical gold can not be shorted. If your judgement is wrong you can lose out a lot.
4)Share of Gold mining companies. It is indirect way of benefiting from the gold prices as profits of gold mining companies go up when gold prices go up. But, again, your judgement of which of the gold companies will excel has to be right. Like any other equity investment it is risky.


How to buy gold ETF?

One should have a demat a/c and trading a/c to buy gold ETF. It can be bought on stock exchange during trading hours like any other stock.

What are the benefits of investing in gold ETF?

Which fund houses have Gold ETF? Performance as of April 17 2012

Fund houses 6 month returns in % 1 year returns in % 3 year returns in % 5 year returns in %
Kotak gold ETF 5.89 32.32 25.40 NA
SBI Gold ETS 5.95 32.43 NA NA
Gs Gold BeES ( Gold Benchmark ETF ) 5.85 31.69 25.33 23.79
UTI Gold 5.92 32.34 25.50 23.86
Quantum Gold ETF 5.87 32.31 25.43 NA
Religare Gold ETF 5.96 34.32 NA NA
HDFC Gold ETF 5.90 32.07 N/A N/A
ICICI Prudential Gold ETF 5.82 31.81 N/A N/A


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