Investment in Gold - Part 3 of 4

Gold Exchange Traded Funds (ETFs)

• Exchange Traded Funds are investments made by an asset management company to manage Gold as the underlying asset. They invest in physical gold.

• You buy Gold ETFs in units of 1 (no fractional units) through a broker as ETFs are traded like stocks and shares on stock exchanges.

• Price of 1 unit (approx. 1 gm) of gold ETF keeps changing similar to the price changes in a stock on a given trading day; except the price also moves in tandem to world gold prices. [Prices of a given stock changes based on the perception of the value (this in turn has its own set of variables) of the company, dynamics of demand and supply shares in the market].

• You need to pay a brokerage charge when you buy / sell the gold ETF.

• One needs a demat account (demat account for gold ETF is the same as that for shares)

• Tax treatment on the profits made by buying and selling of ETFs in NOT AS tax treatment of profits on stocks / shares.

• As the Gold ETF is management by an AMC, there's an additional expense of 1% pa.

• Physical gold is bought by the AMC and managed by authorized participants on behalf of the AMC.

• Gold ETFs were launched in India in 2007

• Well known Gold ETFs - BeES Gold ETF, UTI Gold ETF, Kotak Gold ETF

• Automatic SIP (Systematic Investment Plan) is not possible in Gold ETFs

Gold Mutual Funds

• The investment company (AMC) invests in either companies involved with the mining, refining, trading of gold or invests in Gold ETFs (Fund-of-Funds).

• AIG World Gold Fund and DSP BR World Gold Fund invests in companies which mine, refine gold ore

• Gold ‘Fund-of-Funds’ trend was started by Reliance in 2011 followed by Kotak Gold Savings Fund. Reliance Gold Savings mutual fund is a fund which invests money in Reliance Gold ETF. SBI's latest Gold mutual fund is again a Fund of Funds which invests in SBI’s Gold ETF.

• Any mutual fund which invests in another mutual fund gives a lower return and has higher costs.

• Reliance Gold ETF will give higher returns than Reliance Gold Mutual fund.

• No need for demat account to buy gold mutual funds

• For every amount you invest, you get units of the gold fund. Fractional units are possible when you invest through gold mutual funds

• Entry load / exit load and expense load (1.3%+ pa) as in any mutual fund is applicable

• Tax treatment on the profits made by buying and selling of ETFs in NOT AS tax treatment of profits on stocks / shares

• Automatic SIP (Systematic Investment Plan) is possible in Gold mutual funds