Gold Exchange Traded funds (ETF)

Satisfy love for gold through more reliable routes than a jeweller. Use gold as an investment option. All this can be done by investing in Gold Exchange Traded Funds.

Exchange Traded Funds (ETF) are mutual fund schemes, which invest in a particular stock market index (such as BSE Sensex or NSE Nifty) and are listed and traded on the stock exchanges in the same way as stocks. Now, the concept of ETF has been extended to gold. Mutual funds have been permitted to launch Gold ETF where the underlying asset will be gold (and not a stock market index).

A number of mutual funds have planned launches of gold ETF — Benchmark Mutual Fund, Kotak Mutual Fund, Tata Mutual Fund and UTI Mutual Fund. While the Benchmark Gold ETF has announced its offer open date, the other fund houses have yet to announce their gold ETF NFO opening dates. Gold BeES will provide many investors a safe, transparent avenue to take exposure in gold.
The Gold BeES and Kotak Gold ETF will be listed and traded on the NSE. The Tata Gold Fund’s document, filed with SEBI, does not state which stock exchange it will be listed on.
Minimum investment:

The Gold BeES requires a minimum investment of Rs 10,000 in the NFO and 1 unit (equal to 1 gram of gold) in the secondary market (on NSE). In case of Kotak Gold ETF and Tata Gold Fund, the minimum investment is Rs 5,000.
Gold ETFs will entail you holding gold in the electronic form (demat). You cannot convert your electronic gold holding to physical gold.

The Gold BeES will charge an entry load of 1.5 per cent in the NFO while the Kotak Gold ETF and the Tata Gold Fund propose to charge a steep entry load of 4 per cent during the NFO. You may wonder if it makes sense to avoid the NFO and invest once the ETF is listed. That way you can avoid paying the entry load and simply bear the cost of brokerage, which is presently 0.5 to 1 per cent and other modest incidental charges. While this makes sense, the price of gold may vary (it could rise or fall) by the time the ETF lists, which will be reflected in the unit’s listing/trading price. In addition, you also have to bear other transaction costs (over and above brokerage costs) such as bid offer spread, stamp duty, the exchange’s turnover fees, service tax on brokerage, etc.

In addition to the entry load, the Gold BeES will have an annual expense ratio of 1 per cent while for the Kotak Gold ETF and the Tata Gold ETF, it will be 2.5 per cent.

Investing in gold through ETF has some compelling advantages. Some of these are:

* There is no botheration, as in the case of physical gold, of keeping investment under lock and key and incur bank locker expenses.
* Since there is no dealing with physical gold, there is no problem of confirming gold quality.
* ETF units are highly liquid – one can buy and sell them on the stock exchange.
* Investing in gold lends diversification to one’s investment portfolio.
* Tax benefits available to mutual fund investors are available to gold ETF unit holders.
* While gold used as jewellery ends up being an expense (due to making and storage charges), gold in the form of ETF is an investment, which can help you build significant wealth.
Mutual funds have been permitted to launch Gold ETFs and a number of fund houses have planned launches of Gold ETFs. Gold ETF will entail holding gold in the electronic form (demat) and the investor will not be permitted to convert electronic gold holding to physical gold. However, these are highly liquid and can be bought or sold on the stock exchange on which they are listed. Tax benefits available to mutual fund investors are available to gold ETF unit holders too.

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