On the National Stock Exchange (NSE), 79,000 investors traded in gold ETFs between August 2011 and August 2012, an increase of 41% as against the previous year. The monthly gross average traded in gold ETFs was Rs 1,195 crore for the first seven months of 2012 as against Rs 933 crore.
Assets under management (AUMs) for gold ETFs stood at Rs 11,198 crore in September 2012 as opposed to Rs 8,173 crore in the same period last year. Currently, 14 asset management companies (AMCs) offer this product on the NSE platform.
And with the onset of the wedding and the ongoing festival season, investor interest is only likely to pick up further. On Akshaya Tritiya this year, the exchange recorded Rs 608 crore of trade value, higher by nearly 44%, as compared to the previous year's Akshaya Tritiya. On Dhanteras last year, 24.61 lakh units were traded, highest ever on a single day.
Advantages: From an asset allocation point of view, gold is important for the portfolio as it can counter the effects of inflation. It is advised to have 10% exposure in gold. And ETFs can be a good option. Investment in it is possible in denominations of one gram also. And it is possible to get delivery for 10 grams and 1 kilogram. Earlier you could invest only lumpsum but now fund houses allow investing through SIP. Since it can be purchased in small quantities, one can plan the purchase as per future requirements.
“Gold ETF are more tax efficient than physical gold, easily tradable, available in small denominations and can be kept safe in demat accounts, but there is an annual fee," said a financial planner. In case of physical gold, one ends up paying extra for making charges, but there are no extra charge for gold ETFs. If needed, one can exchange them in multiples of 1 kg units of 0.995 purity.
Unlike gold coins and bars, for which most jewellers offer an exchange but not a buyback, gold ETFs can be sold at market prices. There is no sales tax, VAT or STT applicable.
Returns: In terms of performance, gold has done better than equity. While gold funds have returned nearly 17% in the past year, equity diversified funds have given 11% returns. In the past five years, equity diversified funds have given 3.50%, gold funds have given 24%.
Cost: Fund houses levy an expense ratio of only one%. But the extra charges come by way of the brokers’ fee of up to 0.5%. The annual maintenance cost of a demat account is Rs 400-500.
Other options: Gold ETFs, the oldest form of paper gold, are not favoured by many, as these require a demat account to invest. There are four avenues to invest in gold. You can do so through physical gold (coins and bars), gold exchange-traded funds (ETFs), feeder funds and the e-series (popularly called, e-gold) launched by the National Spot Exchange.
The costs for e-gold are similar, but only in the first month. Since e-gold allows to invest through SIP, the demat account charges would reduce from the second month. However, if you opt for physical delivery, costs will increase further.
You can buy physical gold (coins and bars), only from banks and jewellers. Banks will charge 10-15% higher than the market price. Jewellers will sell it for 5-10% higher. Post Office is another option. They charge a premium of 15-20% on gold coins.
Lastly, there are gold feeder funds. If you do not have a demat account, gold feeder funds are a good option, as it does not make sense to open a demat account only for buying gold via ETFs. SIP option is available here too. These levy an expense ratio of 1.5%.
