Since the times of our great grand parents, gold has been counted as the best investment alternate to keep money safe. Now when global economy is going from a phase of up and downs, Indian economy is not untouched from its impact which lead people follow the foot steps of there ancestors by investing there funds into gold.
The latest report of The Association of Mutual Funds of India (AMFI), states that the investment under gold exchange traded funds (ETFs) has registered more than 100% growth in the first two months of 2012. Recent record reveals the performance of gold ETF’s (Non-Equity ETF) has been the best across all categories of equity investments in terms of generating returns.
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What Are Gold ETF’s?
Gold ETFs are financial instruments which can be purchased by investors in the demat form. Here 1 unit of gold ETF is equal to 1 gram of gold, the value of these financial instruments changes with the change in the price of gold in real time. It is equal to holding physical gold but the difference is you don’t take the delivery of the gold in your hands i.e. you are keeping it electronically.
During the last one year, where Sensex has shown a drop of 10% in the benchmark gold ETF’s proved to be a wise investment with 34.74% returns.
Here is a list of Gold ETF’s available for investment in India. Out of 30 mutual fund companies 11 have come up with their gold ETFs. Lets analyse to choose the best gold ETF in India out of 11 listed below:-
Indian Companies Offer Gold ETFs
Recurring Expenses (Total Expense Ratio)
|Goldman Sachs Gold ETF (Gold BeES)||1.00 % p.a||2.25%|
|UTI Gold ETF||1.00 % p.a||2.5%|
|Kotak Gold ETF||1.00 % p.a||2.5%|
|Reliance Gold ETF||1.00 % p.a||2.5%|
|Quantum Gold ETF||1.00 % p.a||1.25%|
|SBI Gold ETF||1.00 % p.a||2.5%|
|Religare Gold ETF||1.00% p.a||2.5%|
|HDFC Gold ETF||1.00 % p.a||2.5%|
|ICICI Prudential Gold ETF||1.00 % p.a||2.5%|
|Axis Gold ETF||1.00 % p.a||2.5%|
|Birla Sun Life Gold ETF||0.75 % p.a||1.50%|
The next important thing to notice is why there is change in ETF prices offered by different gold ETF companies?. As we described earlier, gold ETFs are equivalent to Gold not actual gold. Which means when we make a purchase of gold ETF, the equivalent amount of physical gold is purchased by the fund manager and kept in the store rooms. Fund manager charges a percentage of total asset in the form of fee for the services offered which includes the custody of physical gold, insurance of physical gold etc. the fee charged is called as expense ratio. This expense ratio of every company varies which is the reason of change in the value of ETF offered by different fund houses.
So here comes the answer of the most popular question. Which is the best Gold ETF in India?. Here I would suggest you to have a basic understanding and judge on your own. You can simply compare different find houses on the basis of few parameters and conclude which is the best gold ETF.
Lower Recurring expense ratio :- Total expenses ratio is per unit cost of managing a fund, it is one parameter which guides you to choose the gold ETF from the big list of ETFs available in market. The lower the recurring expense ratio the better it is for the investor as returns will be higher. In the above list, you can compare and choose the best out of all.
Total Recurring Expense Ratio Includes
- Investment Management & Advisory Fee
- Custodial Fees
- Registrar & Transfer Agent Fees
- Marketing and Selling
- Brokerage and Transaction cost
- Audit Fees/ Fees and expenses of trustees
- Cost of investor communication
- Cost of fund transfer
- Other Expenses
Most of the fund houses mislead investors by disclosing expense ratio to the investors which is only a part of the total recurring expense ratio. So always have a close look on all the charges levied by the fund house before making any investment under gold ETFs.
Impact Of Expense Ratio On ETF Funds
If you invest Rs 2 lakh in a Gold ETF at a NAV of Rs 20 and the expense ratio is 2% p.a. Then in this case, your NAV will move up from Rs 20 to Rs 22 which means the total value of your fund will increase to Rs 2,20,000. But deduction of expense ratio of 2% will reduce the value to 2,15,600 which translate into a loss of Rs 4400.
Advantages Of Investing In Gold ETFs
- No exit and entry load on gold ETFs.
- Convenient dealing through demat account.
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