Strike Gold: ETF is the way!
By Anil Rego
With gold prices running at an all time high, Gold ETFs seems to have caught the fancy of the investor. Ironically, it is because of the rising prices that it might not be the best time now to get into this commodity. However, as history has indicated, investors tend to flock when an asset is closer to it’s high and thus gold ETF’s seem to be the flavor of the season with all & sundry rushing into cashing on the gold fever.
Having cautioned about the rush to invest in gold, it must be said that, if one is looking to invest in gold, exchange traded funds are a convenient mode of doing it. There are many benefits, including, no risk of loss, no storage headache or expenses etc.,
Here's a quick look at this mode of investment:
ETFs: Understanding the avenue
ETFs are passively managed funds and are designed such that the returns provided are closely related to that of physical gold in the spot market. Investing in Gold – ETFs is the closest to buying physical gold.
Gold ETFs are open-ended mutual fund schemes that invests the money collected from investors in standard gold bullion (0.995 purity). The investor's holding will be denoted in units and will be listed on a stock exchange. This necessitates a Demat account to invest in these funds.
Gold Benchmark ETF was launched as an open-ended, passively managed ‘Gold’ fund and the fund set a new record by providing more than attractive returns within the segment.
Investing in ETFs
Gold ETFs are launched as NFOs with an Entry load, hence, it is suggested that one can invest in these funds when they are listed on the stock exchange and thereby avoid bearing the entry load. Do note that although, investors do not have to pay entry load while investing in listed Gold ETFs, they do have to pay a brokerage to the broker.
Gold prices, like that of any listed asset class, change on a daily basis, and the bullion market usually moves in the inverse direction of the Capital market, hence the right time to plough in cash into this avenue is generally when equity markets are riding high.
Given that the Gold prices have spiraled and hits record highs every other day, the returns on gold ETFs have also been equally impressive. The past returns are as stated below –
|Fund Name||Returns %|
|3-M||6-M||1 Yr||3 Yr|
|Axis Gold ETF||14.2||19.9||--||--|
|Birla Sun Life Gold ETF||14.2||--||--||--|
|Goldman Sachs Gold ETF||14||19.8||33.9||26.2|
|HDFC Gold ETF||14.4||20.1||34.1||--|
|ICICI Prudential Gold ETF||14.3||20||33.7||--|
|Kotak Gold ETF||14.5||20.3||34.5||26.2|
|Reliance Gold ETF||14.6||20.4||34.6||26.1|
|Religare Gold ETF||14.4||20.3||34.4||--|
|SBI Gold ETS||14.5||20.4||34.5||--|
|UTI Gold ETF||14.5||20.3||34.5||26.2|
An impressive average of 18.9% across ETFs in the market is impressive and since the bullion market moves inversely in tandem with the capital market, it offers an effective counter to equities (especially during such turbulent times).
Since ETFs are traded on the stock exchange, they are available to investors any time during trading hours. So investors can buy and sell units of an ETF on a real time basis, thereby increasing the liquidity of this otherwise relatively ‘illiquid’ commodity.
Gold ETFs offer investors a convenient means to invest in gold without the hassles of storage; it also spares investors of concerns regarding the quality of gold.
However, one should take a rationale decision on whether gold is a prudent asset choice in the existing portfolio. This can be decided with the help of an expert financial advisor.