RESEARCH ARTICLE ON: INVESTMENT OPPORTUNITIES IN GOLD ETFs BY : PRAVIN CHOUGHULE 07 MAREENA THOMAS 24 GUIDED BY: Dr. KAUSTUBH SONTAKKE.
OBJECTIVES OF STUDY To analyse the performance of Gold ETFs To compare the performance of Gold ETFs with other market indices. To analyse the gold prices over years. To have a basic understanding of gold ETFs. RESEARCH METHODOLOGY The data used in this research project is secondary data from various sources. The analysis performed has been presented graphically. LIMITATIONS The Gold ETF schemes are not discussed in detail. A broader perspective of Gold ETFs is considered. A comparative study of Gold ETFs with limited investment options. EXECUTIVE SUMMARY Exchange Traded Funds (ETFs) are units that represent physical gold in paper or dematerialized form. These units are traded on the exchange like any other stock of a company. ETFs are bought and sold from the stock exchange against a normal mutual fund unit. It represents the ownership of underlying gold assets. Here investors can buy or sell through distributors, brokers or directly from AMC. Any asset class can create ETFs such as ETFs on gold, silver, indices. The main motive of gold ETF promotion is to indulge more members in to Gold bullion markets with a safer and cost effective management by not possessing the physical form of gold, which can other way be beneficial to our economy to face less inflation. Gold ETFs help to invest in Gold and Gold related securities. It can be bought from secondary market with the help of brokers of APs. Investors can also sell their units in the market. ETFs are known as open ended mutual funds that are passively manage and most of them seek to mirror the return of an index, a commodity or a basket of assets.
INTRODUCTION India is a country where brave investment with passion works together. Almost every Indian family or person owns some gold. It is also believed that gold has certain curing or healing powers and add on the physical beauty by wearing the gold ornament. We can see that it is been followed throughout the historical stories. In Hindu mythology, we can see that the women who are addressed in the holy books of Hindus used to wear amply amount of gold ornaments and it was given a very high priority. As it is said by Dr. Robert C. Bright, Gold has been known to possess a warm energy that brings soothing vibrations to the body to aid in the healing process, gold also possess positive energy and healing power. Due to the above reasons mentioned and also due to the personal auspiciousness gold has remained as an important part of our Indian family during a baby s birth to a couple s marriage. In this manner gold and the passion towards it has been passed down from generations. Knowingly or unknowingly this had been a brilliant investment Indians had made over decades, due to which today India is the world s largest consumer in Gold. In this fast growing world with the new safest technologies and ideas to carry on the activities which our ancestors used to take part in with high risk can be handled well. Same way the idea to invest in GOLD ETF is a greatly advisable one than directly investing in GOLD.
GOLD VS GOLD ETFs In the modern age it is seen that Gold ETFs are advisable than Gold in any form. There are specific reasons for the particular decisions taken regarding gold ETFs, this can be better understood by knowing the merits and demerits of possessing Gold and Gold ETFs. The unique salient features possessed by gold can be highlighted through the following benefits of gold. BENEFIT OF GOLD: It is considered as a Global Asset Class. It provides diversification to the portfolio. It is a hedge against inflation. It is less volatile compared to equities. It has the ability to stabilize a portfolio. It can protect its portfolio against market fluctuations. Creates a robust portfolio due to which investment in gold is highly advisible. Gold prices have a better stability or less frequent falls in value as compared to any other investments available. As the coin has two sides, we can also see some drawbacks in possessing or owning gold. DRAWBACKS ON GOLD: Premimum for purchase of gold bars and coins need to be paid Banks and jewelers charge making charges along with the price. Certain banks and jewellers refuse to buyback the gold coins or bars while some jewellers only accept the exchange offers.
GOLD EXCHANGE TRADED FUNDS (ETF) INVESTMENT IN GOLD ETFS: Investment in gold can be made through gold coins, bars, jewellery and even gold exchange traded funds(etf) or gold fund-of-funds. Gold ETF is the safest investment. Gold ETF is gold in electronic form. It is purchased in the same manner any stock of a particular company is purchased. Each unit of gold ETF is approximately equal to the price of 1 gm of gold. As we add on or build up our bank account or jewellers, gradual build up of gold portfolio can be done more easily. Reason behind why Gold ETFs are suggested and are safest option than owning gold can be known by studying the merits and comparing the merits and demerits of Gold and Gold ETFs. MERITS OF GOLD ETFS: For Gold ETF no premiums, making charges or delivery charges are to paid. It has high liquidity. No worries on adulteration or the quality. It is easy to buy gold ETF from any corner of the world. It is safer than gold, gold coins, bars or jewelers. It saves on the bank locker charges spent on the security of gold or gold ornaments. Gold Etfs are exchangeable in multiples of 1kg units for 0.995 purity. There are no worries for theft as they are in demat form. Gold ETFs can be sold at any point of time through brokers. Gold ETFs have a transparent pricing system available at NSE s website Quick and convienient transactions through Demat account. Gold ETFs are easy to sell at a same price across India, unlike gold. No storage and security issues for the investors. Accurate for retail investors as the minimum transaction size is one unit on secondary market. No securities transaction tax or wealth tax imposed on gold ETFs. Gold ETFs are the smartest way to buy, store and sell gold.
DEMERITS OF GOLD ETFS: It is advisible for long term capital gain. Assets management fee is charged which brings down the actual actual return than the actual increase in gold price. The brokerage charge or commission is a drawback for regular dealer. Some gold ETFs are liquid which has a great impact on it buying and selling flexibility. STEPS TO BUY GOLD ETFS: Register youself with a broker having membership with NSE. Fill up the KYC form. Open a Demat account. There are 14 Gold ETFs listed in NSE website www.nsegold.com, which will be guided by the specific broker to make the right selection. Start your gold ETF transactions.
ETF SCHEMES IN NUTSHELL Axis Gold ETF: Axis Gold ETF scheme lets you buy gold without the risk associated with physical storage. You get 99.5% purity at current market prices. Goldman Sachs Gold Exchange Traded Scheme: Goldman Sachs Gold Exchange Trade Scheme provides returns in the form of physical gold. The returns on this scheme closely correspond to the domestic price of gold. UTI GOLD Exchange Traded Fund: The objective of UTI Gold Exchange Traded fund scheme is to provide returns that, before expenses, closely track the performance and yield of Gold. However the tracking error causes the performance of the scheme to differ from the underlying assets. HDFC Gold Exchange Traded Fund: The HDFC Gold Exchange Traded Fund scheme provides returns depending on the performance of the gold subject to tracking errors. Kotak Gold Exchange Traded Fund: The Kotak Gold Exchange Traded fund scheme invests in physical gold and endeavours to track the domestic spot price of gold closely. The objective is to generate returns in line with the returns on investment is physical gold, subject to tracking error. ICICI Prudential Gold Exchange Traded Fund: The ICICI Prudential Gold Exchange Traded Fund Scheme provides returns that, before expenses closely track the performance of domestic prices of Gold derived from the LBMA AM fixing prices. This fund does not engage in any activities that tend to bear losses or gains according to the changes in price of gold. Quantum Gold Fund: The Quantum Gold Fund ETF scheme provides returns that, before expenses, corresponds with the performance of gold subject to tracking error. Reliance Gold Exchange Traded Fund: Reliance Gold Exchange Traded Fund provides returns based on the returns gained by investing in physical gold and gold related securities. However, the performance of the scheme may differ from that of the domestic prices of Gold due to expenses and or other related factors.
Religare Gold Exchange Traded Fund : The objective of Religare Gold Exchange Traded Fund scheme is to provide returns closely corresponding to returns provided on investments in physical gold subject to tracking error. SBI Gold Exchange Traded Scheme: The SBI Gold Exchange Traded Scheme invests in gold and gold bullions. The main endeavour is to track price of the gold. It seeks to provide returns based on the returns provided by investing in physical gold in domestic market. However, due to the tracking error the performance of the scheme may differ from underlying assets. Birla Sun Life Gold ETF: Birla Sun Life Gold ETF scheme generates returns corresponding to performance of gold subject to tracking error. IDBI Gold Exchange Traded Fund: IDBI Gold Exchange Traded Fund scheme tracks the price of gold in domestic market. This scheme seeks to attain its investment objective by minimizing the tracking error between the fund and the underlying assets. Motilal Oswal MOSt Shares Gold ETF: The Motilal Oswal MOSt Shares Gold ETF scheme invests in Gold Bullions. It tracks the domestic spot price of gold closely. However, due to the tracking error the performance of the scheme may differ from underlying assets. Canara Robeco Gold Exchange Traded Fund: The Canara Robeco Gold Exchange Traded Fund scheme has the investment objective of generating returns corresponding to performance of gold subject to tracking error.
GRAPHICAL PRESENTATION TOP 5 COMPANY S PAST 3YEARS PERFORMANCE IN ETFs: ABSOLUTE RETURNS 18.2% Kotak Gold ETF SBI Gold ExchangeUTI Gold Exchange Traded Scheme Traded Fund Quantum Gold Fund Reliance Shares Gold Exchange Traded Fund ABSOLUTE RETURNS MARKET INDICES: 9.0% 8.0% 7.0% 6.0% 5.0% Percentage Returns of 5yrs. 4.0% 3.0% Percentage Return of 5yrs. 2.0% 1.0% 0.0% Sensex Nifty CNX 500 S&P BSE 500 Gold ETF
GROWTH IN GOLD PRICE DURING THE PAST 6 YRS: 35000 Gold price per 10gms. 30000 25000 20000 15000 10000 5000 0 2007 2008 2009 2010 2011 2012 Gold price per 10gms. GROWTH IN GOLD ETF: 14000 Gold ETF's AUM 12000 10000 8000 6000 Gold ETF's AUM 4000 2000 0 2008 2009 2010 2011 2012
CONCLUSIONS The absolute returns for the top 5 performers of Gold ETFs are averaging around 18 for the last 3 years. The Gold ETFs have generated higher returns for the last 5 years than the other major market indices. The Gold prices have almost become 3times in 2012 as compared to 2007. There is a steep rise in AUM during the last 5 years which makes Gold ETFs a lucrative investment option. Investors are investing more in Gold ETFs than other ETFs and Stocks. Most of the Gold ETF Schemes are in line with the market price of gold.