Commodities - Gold ETF's - Basics in MARKETS - Gold has traditionally been most popular with Indians. Almost every household possesses gold in one form or the other and ...
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07-26-2011 05:39 PM
Gold ETF's - Basics
Gold has traditionally been most popular with Indians. Almost every household possesses gold in one form or the other and its part of important events like marriages, religious ceremonies and so on. It is also an important asset, used as a currency and a commodity. Significantly, gold is often bought counter effects of inflation and currency fluctuations. Gold is significantly less volatile than most commodities and many equity indices.
What are Gold ETF's?
Gold ETF's are units representing physical gold, which may be in paper or de-materialized form. These units are traded on the exchange like a single stock of a company. Gold ETFs are intended to offer investor a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that participation through the trading of a security on a stock exchange.
Gold ETF Listed on NSE
GOLDBEES - Benchmark Mutual Fund - 1 gram
GOLDSAHRE - UTI Mutual Fund - 1 gram
KOTAKGOLD - Kotak Mutual Fund - 1 gram
RELGOLD - Reliance Mutual Fund - 1 gram
QGOLDHALF - Quantum Mutual Fund - 1/2 gram
SBIGETS - SBI Mutual Fund - 1 gram
RELIGAREGO - Religare Mutual Fund - 1 gram
HGETF - HDFC Mutual Fund - 1 gram
How to Trade Gold ETFs
Trading in Gold ETFs is very simple. It is similar to how you trade in equity shares i.e. you need to register yourself with a broker having membership on NSE, fill-up the KYC form, open a DeMAT Account and then commence trading.
Comparison ETF (vs) Physical Gold
Benefits of Gold ETFs- Transparent Pricing - Investor gets best possible price while investing in Gold through GOLD ETFs
- Easy Accessibility - NSE has more than 1,80,000 terminals spread across more than 1500 towns in the country
- Purity - Since Gold ETFs are held in demat or paper form, they eliminate impurity issues associated with physical gold.
- Security - There are no storage and security issues involved with GOLD ETFs
- Available in Smaller Denomination - Minimum investment for a GETF is one unit which equals one gram in most units, which is suitable for retail investors.
- Allows easy asset allocation and diversification - Investing in Gold as an asset class helps an investor diversify his portfolio
- Tax Benefits
- No Sales Tax/VAT/STT is chargeable on investment in Gold made through ETF.
- As Gold ETF units are traded on stock exchange, the period of holding for an investor to be eligible for Long Term Capital Gains Tax is 1 year (vs) 3 year in case of physical Gold.
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07-26-2011 05:44 PM
FAQs:
1. Who can use Gold ETF's?
Due to unique structure of Gold ETFs, all types of investors whether retail or institutional, long term or short term, can use it to their advantage.
2. Are the Gold ETFs liquid enough?
Yes, Since Gold ETFs are actively traded on the exchange, one can easily liquidate ones position whenever needed. Authorized participants appointed by AMC companies also help in providing liquidity by creating or redeeming ETFs based on demand on supply.
3. What are the costs involved in trading GETF?
One of the big advantages of trading in ETFs is that it does not attract Securities Transaction Tax (STT). Since ETFs are traded on the exchange, all other costs involved are similar to trading in equities (Brokerage % charged by broker)
4. Can Gold be used as collateral's on margin ?
Yes, Gold can be considered as collateral's on margin. Most of the financial institutions accepts gold as collateral's or margin with some hair cut applicable. The applicable hair cut is published from time to time.
5. Who will guarantee the purity bought ?
The authorized custodian (safe keeper) sources gold from LBMA (London Bullion Market Association) approved refiners on behalf of investors. The amount of gold held by custodians in all schemes os of finest purity of 99 parts per 1000. In other words, This gold is 99.5% pure. This degree of purity is also called as 24 carat in general parlance. Whats more is that gold held by custodians is fully insured.
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07-26-2011 06:38 PM
Some Basic Terms Involved in Gold ETFs:
NAV: Stands for the Net Asset Value declared everyday by the Asset Management Company (AMC), which manages ETFs. It is calculated by dividing the total value of the portfolio less any liabilities, by the number of fund ETFs outstanding.
Bid: The price at which investor wants to buy the Gold ETF.
Ask: The price at which investor wants to sell the Gold ETF.
Creation: The procedure of creating fresh Gold ETF whenever there is supply ETF from AP's.
Redemption: The procedure of buying back Gold ETF whenever there is supply ETF from AP's.
Tracking Error: This is the difference in live quote of domestic price with that ETF (generally it ranges from 0.05% - 0.07%)
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