Way2goals gold ETF

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Gold ETF (Exchange Traded Fund)

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.

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. 25000. 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.

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.

What is Gold ETF?

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.

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?

Diversification in your portfolio
It is liquid
Holding costs are low
No making charges and wastage
No hassel of storing and insuring physical gold
No need of worrying about theft
No need to worry about the quality of gold
Works as hedge against inflation in ones portfolio
Gold held in demat form is not liable for wealth tax

Which fund houses have Gold ETF? Performance as of October 21st 2011

Fund houses	6 month returns	1 year returns	3 year returns
Kotak gold ETF	20.80%	34.24%	26.35%
SBI Gold ETS	20.84%	34.26%	N/A
Gold BeES ( Gold Benchmark ETF )	20.29%	33.65%	27.48
UTI Gold	20.79%	34.23%	27.55
Quantum Gold ETF	20.83%	34.27%	26.35
Religare Gold ETF	20.74%	34.20%	N/A
HDFC Gold ETF	20.61%	33.80%	N/A
ICICI Prudential Gold ETF	20.46%	33.80%	N/A