A STUDY ON INVESTORS BEHAVIOUR TOWARDS GOLD EXCHANGE TRADED FUNDS IN INDIAN STOCK MARKET WITH SPECIAL REFERENCE TO TAMIL NADU

Management Volume : 5 Issue : 3 March 2015 ISSN - 2249-555X A STUDY ON INVESTORS BEHAVIOUR TOWARDS GOLD EXCHANGE TRADED FUNDS IN INDIAN STOCK MARKET WITH SPECIAL REFERENCE TO TAMIL NADU Keywords G.Venkatachalam Doctoral Research Scholar, Department of Business Administration, Government Arts College, Dharmapuri-636705, Tamil Nadu, India. Dr. G. Prabakaran Assistant Professor, Department of Business Administration, Government Arts College, Dharmapuri-636705, Tamil Nadu, India ABSTRACT Gold is always considered as one of the best investment alternatives available with common Indian investor. Indians consider the investment in gold as a traditional method of investment. As a world s top consumer of gold, India accounts for 20% of world gold demand. As the importance of gold investment is increased due to extreme unpredictable change in the financial markets, economic uncertainty and fears that national currencies will lose their value etc, force the investment in gold. It is mainly because gold is always considered as the best means to hedge against market volatility. As its importance is increased in the investment arena, now a days gold is measured as an equivalent to investment opportunities in the mainstream of financial markets. INTRODUCTION An investor has numerous investment options to choose, depending on his risk profile and expectations of returns. As such, different investment options represent a different risk-return trade off. The low risk investments are those that offer assured, but lower returns, where as the high risk investments provide the potential to earn greater returns. Hence, an investor s risk tolerance plays a vital role in choosing the most suitable investment. Various investment options are available such as bank deposits, investment on commodities like gold and silver, post office savings schemes, public provident fund, company fixed deposits and stock market options like bonds and debentures, mutual funds and equity shares of the various types of investment options, gold happens to be one of the best options to be included in the portfolio for diversifications of risk. Gold is always considered as one of the best investment alternatives available with common Indian investor. Indians consider the investment in gold as a traditional method of investment. As a world s top consumer of gold, India accounts for 20% of world gold demand. If we consider the price growth of gold since 2001, it has risen by as much as 450 percent. As the importance of gold investment is increased due to extreme unpredictable change in the financial markets, economic uncertainty and fears that national currencies will lose their value etc, force the investment in gold. It is mainly because gold is always considered as the best means to hedge against market volatility. As its importance is increased in the investment arena, now a days gold is measured as an equivalent to investment opportunities in the mainstream of financial markets. Gold ETF is an open ended exchange traded funds, listed in the stock exchange, available for trading with an intention of offering to investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold. However, the performance of the scheme may differ from that of the domestic prices of gold due to the expenses or other related factors. All gold bullion held in the scheme is an allocated account with the custodian which shall have the purity of 99.5%. A demat account and registration with the broker (member of NSE/ BSE) are mandatory for the investors who are willing to invest in Gold ETFs. STATEMENT OF THE PROBLEM There is a range of charges, such as management and advisory fees, marketing and distribution expenses, custodian charges and other operational expenses. The expense ratio of Gold ETFs is around 1%. Apart from the charges, tracking error also brings down the returns of Gold ETF s to a small extent. Another drawback is that sometime s are illiquid, which imparts the buying and selling flexibility of these ETFs. Further Gold ETFs require demat account and the conversion option is possible only if the investors hold 1000 units (1kg) gold of s. OBJECTIVES OF THE STUDY The following are the objectives of the study To study investors behaviour towards Gold Exchange Traded. To study the relationship between socio-economic profile and Behaviour of Gold Exchange Traded investors. RESEARCH METHODOLOGY The research methodology includes nature of the study, nature of the data, data collection instrument, sample size determination, sampling procedure, hypotheses, period of the study, area of the study and framework of analysis. The research design applied for this study is analytical and descriptive in nature. Nature of the Data Both primary and secondary data were used in this study. The primary data were collected from investors of s in all the 10 city corporations of Tamil Nadu. The details regarding socio-economic profile of the investors and investors behaviour towards s were collected by using a well structured interview schedule. The secondary data were collected from reports published by the Gold Exchange Traded, SEBI and association of Mutual in India. The secondary data were also collected from journals, magazines, periodicals and dailies. INDIAN JOURNAL OF APPLIED RESEARCH X 253

Data Collection Instrument The questions in the interview schedule were designed pertaining to the statement of the problem and objectives of the study. The variables identified from review of literature were taken into account while drafting the interview Schedule. The opinion from a panel of members comprising of experts in the field of stock market, security analysis, portfolio management, statistics, psychology, economics and commerce was sought for at every stage of designing the final interview schedule. Sample Size Determination The following formula is applied to determine the optimum sample size. Where, e= 0.02 (since the estimate should be within 2% of true value) Za/2= 1.96 (as per table of area under normal curve for the given confidence level of 95%) P= 0.05 (It is calculated on the basis of result of a pilot study) Sample Size (n) = 456 Sampling Procedure The Gold Exchange Traded investors of Tamilnadu represent the population for the study. The sample respondents from s agencies of city corporations have been selected by adopting probability sampling method. PERIOD OF THE STUDY The period of the study was confined from 2012 to 2014. With a view of gaining insight into gold exchange traded funds, a detailed study was conducted. The review of literature and conceptual frame work of the study took six months duration. It tooks six months of preparation for interview schedule and conducting pilot study. The collection of primary data from the investors of s and collection of secondary data from Gold Exchange Traded took one year of time. The analysis and interpretation of the data took another six months. The last six months period was utilised for rough drafting and finalizing the form of thesis. As far as the performance evaluation of gold exchange traded funds is concerned, the period of the study was covered from 1 st April 2009 to 31 st March 2014. LIMITATIONS OF THE STUDY The study is confined to Gold Exchange Traded (s) only. The study is excluded from other gold investment avenues. The independent variables included in this study are restricted to select variables only. INVESTORS BEHAVIOUR TOWARDS s To analyse the investors behaviour towards gold exchange traded funds, factor analysis, cluster analysis, discriminant Volume : 5 Issue : 3 March 2015 ISSN - 2249-555X analysis and chi-square test and correlation analysis are applied. Factor Analysis The factor analysis tries to identify and define the underlying dimensions (factors) in the original variables. Here 12 variables are identified to study the investors behaviour towards gold exchange traded funds. The variables are stated in the form of statements to collect opinion from s investors. They are asked to give their opinion for all the 12 statements in the Likert s five point scale with the alternate options such as strongly disagree, disagree, neither agree nor disagree, agree and strongly agree. All the statements are loaded on the three factors. The results so obtained have been given in the following table separately along with factor loadings. Table 1: Factors and Total Variance Extraction Sums of Rotation Sums of Squared Squared Loadings Loadings 1 2 3 Component Total 4.479 1.289 1,218 % of Variance 37.325 10.746 10.149 (Source: Primary Data) Cumulative % 37.329 48.070 58. 220 Total 3.316 2.174 1.676 % of Variance 26.135 18.120 13.965 Cumulative % 26.135 44.255 58.220 Table 1 reveals that among the three factors, the first factor which accounts for 26.135 percent of variance is the prima criteria considered to study the investors behaviour towards s. The second and third factors which account for 18.120 and 13.965 percent respectively. The cumulative variance of the all the three factors is 58.220 percent. Cluster Analysis The investors behaviour towards s can be classified into three categories based on choice criteria using the cluster analysis. They are classified into three segments because the difference between the co-efficient is significant only on three cases on the hierarchical cluster. For the purpose of classification of investors K-means cluster is applied. Table 2: Final Cluster Centers Factors Cluster 1 2 3 Investment Objectives (Factor-1) 3.95 2.15 4.07 Investment Decision (Factor-2) 3.74 2.47 3.79 Investment Safety (Factor-3) 3.18 2.81 4.33 Total 10.87 7.43 12.19 Average 3.62 2.47 4.06 Rank II III I (Source: Primary Data) The final cluster centers table 2 shows the mean values for the three clusters which reflect the attributes of each cluster. The high mean value for the first cluster, second cluster and third cluster is 3.95, 2.81, and 4.33 respectively. The average score of the first cluster is 3.62 with second rank, second cluster is 2.47 with third rank and third cluster is 4.06 with first rank. This means that the first cluster 254 X INDIAN JOURNAL OF APPLIED RESEARCH

Volume : 5 Issue : 3 March 2015 ISSN - 2249-555X respondents have medium behaviour, second cluster respondents have low behaviour and third cluster respondents have good behaviour towards s. Table 3: Number of Cases in Each Cluster Cluster Respondents Percentage Rank Cluster 1 155 34.4 II Cluster 2 62 13.8 III Cluster 3 233 51.8 I Total 450 100 (Source: Primary Data) Table 3 reveals that out of 450 respondents, 233 (51.8%) respondents have good behaviour, 155 (34.4%) respondents have medium behaviour and 62 (13.8%) respondents have low behaviour towards s. It is important to be noted that majority of the respondents (51.8%) have well behaved towards Gold Exchange Traded (s). Chi-Square Test Chi-square values for socio- economic variables and investors behaviour of gold exchange traded funds are given in the following table 4. To study the significant association between socio- economic variables and investors behaviour towards gold exchange traded funds, the following 30 socio- economic variables are considered. Table 4: Association between Socio- economic Variables and Investors Behaviour guiding factors for investment decision, reasons for investment in s, increased amount of investment in s than previous years, report analysis, investment made in s, sources of information for performance analysis, preferred level of risk by the investors and preference to buy schemes on special occasions have significant association with investors behaviour. The remaining eight variables namely, place of residence, marital status, occupation, number of dependants, preferred mode of investment in s, bases for selection of s, investment frequency and risk perception by the investors do not have significant association with investors behaviour. FINDINGS It is found from the factor analysis that all the 12 statements are loaded on only three factors namely investment objectives, investment decision and investment safety. Among the three factors, the first factor which accounts for 26.135 percent of variance is the prima criteria considered to study the investors behaviour towards s. The second and third factors which account for 18.120 and 13.965 respectively. The cumulative variance of all the three factors is 58.220 percent. It is learnt from the cluster analysis that out of 450 respondents, 233 (51.8%) respondents have good behaviour, 155 (34.4%) respondents have medium behaviour and 62 (13.8%) respondents have low behaviour towards s. It is observed that majority of the respondents (51.8%) have S.No Socio- economic Variables Chi-Square Significant Value Value Significant or not 1 Place of Residence 1.738 0.784 Not Significant 2 Gender 12.899 0.002 Significant 3 Age 35.642 0.000 Significant 4 Marital Status 4.020 0.403 Not Significant 5 Educational Qualification 38.433 0.000 Significant 6 Occupation 1.632 0.601 Not Significant 7 Annual Income 22.254 0.001 Significant 8 Monthly Savings 55.542 0.000 Significant 9 Type of Family 11.780 0.003 Significant 10 Number of Dependants 5.537 0.477 Not Significant 11 Financial Advisor (s) 12.284 0.002 Significant 12 Savings Objective 27.466 0.017 Significant 13 s Investment Objective 17.755 0.023 Significant 14 Gold Investment Asset Class 16.121 0.041 Significant 15 Preferred Mode of Investment in s 0.150 0.928 Not Significant 16 Preferred Plan 83.115 0.000 Significant 17 Bases for Selection of s 18.527 0.294 Not Significant 18 Portion of investment in s 39.599 0.000 Significant 19 Time of investment 14.793 0.022 Significant 20 Investment Frequency 13.957 0.175 Not Significant 21 Main Source of Investment Advice 29.331 0.000 Significant 22 Guiding Factors for Investment Decision 35.109 0.000 Significant 23 Reasons for Investment in s 29.974 0.008 Significant 24 Increased Amount of Investment in s than Previous Years 15.826 0.000 Significant 25 Reports Analysis 18.904 0.001 Significant 26 Investment made in s 53.409 0.001 Significant 27 Sources of Information for Performance Analysis 42.474 0.000 Significant 28 Perceived by the Investors 11.709 0.764 Not Significant 29 Preferred Level of by the Investors 43.590 0.000 Significant 30 Preference to Buy Schemes on Special Occasions 16.976 0.009 Significant (Source: Primary Data) behaved well towards s. From table 4 it is observed that out of 30 socio- economic variables 22 variables such as gender, age, educational qualification, annual income, monthly savings, type of family, financial advisors, savings objective, investment objective towards s, gold investment asset class, preferred investment plan, portion of investment amount in s, time of investment, main source of investment advice, It is learnt from the Chi square analysis that out of 30 socio- economic variables, 22 variables were significant at 1% level variables such as gender, age, educational qualification, annual income, monthly savings, type of family, financial advisors, savings objective, investment objective, gold investment asset class, preferred invest- INDIAN JOURNAL OF APPLIED RESEARCH X 255

ment plan, portion of investment amount in s, time of investment, main source of investment advice, guiding factors for investment decision, reasons for investment in s, increased amount of investment in s than previous years, report analysis, investment made in s, sources of information for performance analysis, preferred level of risk by the investors and preference to buy schemes on special occasions have significant association with investors behaviour. The remaining eight variables namely, place of residence, marital status, occupation, number of dependents, preferred mode of investment in s, bases for selection of s, investment frequency and risk perception by the investors do not have significant association with investors behaviour. Volume : 5 Issue : 3 March 2015 ISSN - 2249-555X CONCLUSION The investors of gold exchange traded funds to consider the investment influencing factors such as government policies towards s, opportunity for wealth creation, funds reputation, grievances handling procedures, different choice of schemes, net asset values and fund loads. They select suitable investment schemes with regard to their annual income, monthly savings, savings objective, time of investment, investment objective, and reasons for investment in s and level of risk. The s investors change the investment frequency, preferred level of risk and sources of information for performance analysis to overcome the problems with regard to making investment in s. Hence, these factors enable the investors to make right decisions and to overcome the problems with regard to making investment in gold exchange traded funds, REFERENCE 1. Adrangi, B, Economic Activity, Inflation and Hedging- The Case of Gold and Silver Investments, The Journal of Wealth Management, 2003 6(2), Pg 60-77. 2. Batten. J.A., et al, The Macroeconomic Determinants of Volatility in Precious metals Markets, Resources Policy, 2010, vol-35, pg.65-71. 3. Beckmann, J and Czudaj, R, Gold as an inflation hedge in a time- varying co-efficient Framework, North American Journal of Economics and Finance, 2013, (24), Pg. 208-222. 4. Bloomenthal. A., Glitter ETFs shine, Global Exchanges and ETFs Report 2008, pg.20-21. 5. Chau, J and Woodward, R, Gold as an inflation Hedge: A Comparative Study of Six Major Industrial Countries, Journal of Business and Accounting, 1982, Vol.9 6. Dr. Abhilasha Jain, The Evolution of the Global ETF Market: Its Growth & Future Prospects in India, RIJBFA, Nov.2012, Vol.1, Issue 11, pg.1-15. 7. Dr. Deepak Sahni and Prof Praveen Kukreti, Investing in Gold-How to select the best option for an Indian investor, IJRIME, Sep. 2012, Vol. 2, Issue 9, pg.35-47. 8. Fisher, Gold as an Alternative Assets Class; 5 Reasons to Invest, 2008, (Online) http://www.themoneyquest.com/2008/11/gold-as-alternative-asset-class-5.html. 9. Harjot, Avenues for Gold Investment, (Online) http:// www.rupeetalk.com/ article/ gold-article/avenues-for-goldinvestment.php, 2011. 10. Ibrahim, Financial Market and Gold Investment in an Emerging Market. The case of Malaysia, International Journal of Islamic and Middle Eastern Financial Management, 2012, 5(1) pg. 25-34. 11. Mohammed Saleem and Matloobulla Khan, The Overview of Gold ETFs and its Various Positive Features, International Journal of Marketing, Financial Service and Management Research, 2013, Vol.2, No.4. 12. Noblett, Jackie, Soaring gold prices spur ETF marketing rush, Financial Times, Oct.7, 2010. 13. Prasanta Athma, Gold ETFs An Emerging Investment Option, APJRBM, Vol.2 Issue 1, January 2011, pg. 66. 14. Rajesh Naidu, Gold ETFs: Investors take Refuge in Gold ETFs amid Global Uncertainty, The Economic Times, August 9, 2011, pg.4. 15. Swapan Sarkar, The Glittering. Gold ETFs, The Management Account, Volume 47, No.1, Jan-2012, pg. 65-69. 256 X INDIAN JOURNAL OF APPLIED RESEARCH

Volume : 4 Issue : 3 March 2015 ISSN No 2277-8179 Performance Evaluation of Gold Exchange Traded in Indian Stock Market Management KEYWORDS : Research Paper G.Venkatachalam Dr. G. Prabakaran Doctoral Research Scholar, Department of Business Administration, Government Arts College, Dharmapuri-636705, Tamil Nadu, India. Assistant Professor, Department of Business Administration, Government Arts College, Dharmapuri-636705, Tamil Nadu, India. ABSTRACT Gold ETFs provide investors a means of participating in the gold bullion market, without the necessity of taking physical delivery of gold, and to buy and sell by participating through the trading of security on stock exchange. The gold ETF would be a passive investment. When the price of gold rises up, the ETF enhances its value, and when the price comes down, the ETF losses its value. The measures taken by the SEBI and gold exchange traded funds enable the investors to make prudent investment decisions and to overcome the problems with regard to making investment in s. INTRODUCTION Over the past few years, there has been a significant development in Indian gold ETF market. Even though the size of the industry is small Indian investors seek wider access to more liquid gold investments. Hence ETFs have gained more popularity among them. The Indian gold ETF industry offers 14 gold ETFs and 11 gold fund of funds (FoFs). The total AUM of Gold ETF as of June 30, 2014, was of Rs. 8,093 crore while the AUM of Gold FoF was of Rs.3,226 crore. As of December, 2013, the collective holding by Indian ETFs in gold was of 30.2 tones (approx). Gold ETF is an open ended exchange traded funds, listed in the stock exchange, available for trading with an intention of offering to investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold. However, the performance of the scheme may differ from that of the domestic prices of gold due to the expenses or other related factors. All gold bullion held in the scheme is an allocated account with the custodian which shall have the purity of 99.5%. A demat account and registration with the broker (member of NSE/BSE) are mandatory for the investors who are willing to invest in Gold ETFs. SIGNIFICANCE OF THE STUDY Every investor has a different perception regarding the risk and return. There is a general rule of risk and return where higher the risk, higher the returns and lower the risk and lower returns. The return and risk combination depend upon the investors choices and his or her actions. There are so many destinations for investment, as already discussed in the introduction, such as equity shares, bonds, debentures, bank deposits, gold, silver and many more and their risk and return relation always differs from each other. But investment should be of such type that may produce high return with minimum risk and that is convenient to do. At these criteria, gold is much attractive and most productive in terms of return in present scenario. India is one of the largest consumers of gold. The most important point is that everyone is not able to invest or purchase the gold. The investors who have less amount of savings or funds to invest, are unable to do this because of the prices and scarcity nature of gold. Gold investment requires a large amount to get adequate growth and return on investments. To make investment in gold, which is possible for such investors, there is the most popular type of investment called Gold Exchange Traded (s), where the investors can invest large amount. Gold ETFs provide investors a means of participating in the gold bullion market, without the necessity of taking physical delivery of gold, and to buy and sell by participating through the trading of security on stock exchange. The gold ETF would be a passive investment. When the price of gold rises up, the ETF enhances its value, and when the price comes down, the ETF losses its value. STATEMENT OF THE PROBLEM There is a range of charges, such as management and advisory fees, marketing and distribution of expenses, custodian charges and other operational expenses. The expense ratio of Gold ETFs is around 1%. Apart from the charges, tracking error also brings down the returns of Gold ETF s to small extent. Another drawback is that sometime s are illiquid, which imparts the buying and selling flexibility of these ETFs. Further Gold ETFs require demat account and the conversion option is possible only if the investors hold 1000 units (1kg) gold of s. Based on the above issues, the following questions were probed: 1. Whether s provide safety of investment for investors? 2. Is the principal amount really protected in s? 3. Whether the risks are covered in s investment for investors? OBJECTIVES OF THE STUDY The following are the objectives of the study 1. To study the risk and return of gold exchange traded funds. 2. To evaluate the risk-adjusted performance of gold exchange traded funds. RESEARCH METHODOLOGY The research design applied for this study is empirical, analytical and descriptive in nature. Nature of the Data The secondary data were collected from reports published by the Gold Exchange Traded, SEBI and association of Mutual in India. The secondary data were also collected from journals, magazines, periodicals and dailies. Financial Tools Used for Analysing Secondary Data The financial tools employed for analysis secondary data are Sharpe ratio, Treynor ratio, Jenson Measure, Sharpe differential return and Fama s components. LIMITATIONS OF THE STUDY 1. The study is confined to 10 city corporations of Tamil Nadu only. The various alternatives of gold investment such as physical form (jewellery, coin and bar), Gold savings fund, E-Gold and Gold futures are excluded from the study. 154 IJSR - INTERNATIONAL JOURNAL OF SCIENTIFIC RESEARCH

2. The study is confined to Gold Exchange Traded (s) only. The study is excluded from other gold invesment avenues. s and s of Gold ETFs Vs Spot Gold Price There were 14 funds coming under s. The models developed by Sharpe (1966), Treynor (1965), Jenson (1968) and Fama s decomposition model were used to assess the returns and risks of these funds. The Standard Deviations of the monthly returns were used to measure the risk. Hence risks associated with the market and risks associated with the fund were calculated. Table 1: and of s VS Spot Gold Price (April 2009 to March 2014) F u n d Market return Market (Spot Gold Price) Free GOLD MAN SACHS 1.138 5.166 1.254 4.536 0.681 AXIS 0.789 5.570 0.946 4.565 0.720 BSL 0.827 6.139 0.852 4.800 0.720 CRMF 0.120 6.076 0.092 3.820 0.711 HDFC 0.934 5.432 1.073 4.444 0.718 ICICI 0.938 5.433 1.073 4.444 0.718 IDBI -0.064 5.549 0.279 4.055 0.715 KOTAK 1.151 5.206 1.254 4.536 0.681 MOTILAL -0.069 5.797 0.092 3.820 0.711 UTI 1.150 5.206 1.254 4.536 0.681 RELIANCE 1.199 5.165 1.254 4.536 0.681 RELIGARE 1.234 5.535 1.298 4.550 0.713 SBI 1.124 5.258 1.254 4.575 0.684 QUANTUM 1.147 5.232 1.254 4.536 0.681 AVERAGE 0.830 5.483 0.945 4.411 0.701 Among the 14 s, the Religare ranked first and is giving best return to its investors with a value of 1.234 per cent monthly returns. However, it is little lesser than the returns received from the Benchmark index namely, Spot Gold Price (1.298%). The risk associated with its returns in respect of Religare also found to be higher (5.535%) than other Benchmark Index. The highest risk is associated with the fund BSL (6.139%) followed by CRMF (6.076%). All the funds are found to have higher risk than risk of the bench mark index, i.e., Spot Gold Price. Among the 14 s, IDBI and Motilal have given negative return ie., a loss of 0.064% and 0.069% respectively. Among the 14 funds, half of the funds have given returns more than 1%. As far as the fund risk is concerned, the Reliance ETF and Goldman Sachs ETF were found to have least risk of 5.165% and 5.166% respectively. return, fund risk, fund beta and beta (t) for all the gold exchange traded funds are given in the table 2. Table 2: and of Gold ETFs (April 2009 to March 2014) (.) (t) GOLD MAN SACHS 1.138 5.166 1.018 15.034 ** AXIS 0.789 5.570 1.084 11.912 ** BSL 0.827 6.139 1.106 9.753 ** Significance Volume : 4 Issue : 3 March 2015 ISSN No 2277-8179 (.) (t) CRMF 0.120 6.076 1.272 6.601 ** HDFC 0.934 5.432 1.084 12.311 ** ICICI 0.938 5.433 1.083 12.238 ** IDBI -0.064 5.549 1.192 7.988 ** KOTAK 1.151 5.206 1.026 15.095 ** MOTILAL -0.069 5.797 1.257 7.378 ** UTI 1.150 5.206 1.033 15.580 ** RELIANCE 1.199 5.165 1.024 15.527 ** RELIGARE 1.234 5.535 1.073 12.700 ** SBI 1.124 5.258 1.035 15.504 ** QUANTUM 1.147 5.232 1.038 15.574 ** AVERAGE 0.830 5.483 1.095 12.371 Significance The of Goldman Sachs is 1.018 which indicates that when the market return is increased by an unit, the corresponding increase in the fund is 1.138. (t) is calculated to test whether the effect of on fund is significant or not. All the funds have significant betas. Unique and Diversification of s The unique risk and diversification of gold exchange traded funds are given the following table 3. Table 3: Unique and Diversification of s (April 2009 to March 2014) Unique risk Diversification GOLD MAN SACHS 0.081 0.799 AXIS 0.387 0.789 BSL 0.519 0.748 CRMF 1.062 0.664 HDFC 0.380 0.787 ICICI 0.375 0.785 IDBI 0.792 0.711 KOTAK 0.121 0.799 MOTILAL 1.001 0.712 UTI 0.150 0.810 RELIANCE 0.110 0.808 RELIGARE 0.337 0.778 SBI 0.162 0.812 QUANTUM 0.173 0.811 AVERAGE 0.404 0.772 Table 3 shows the unique risk and the extent of diversification of selected gold exchange traded funds. The average unique risk was found to be 0.404 and the extent of diversification was found to be 0.772 ie., 77.2%. From this table, it can be seen that the highest unique risk of CRMF and Motilal is 1.062 and 1.001 respectively. Out of fourteen funds, only four funds namely, CRMF, BSL, IDBI and Motilal, i.e., nearly one third of them, have more diversifiable risk than average. - Grid of s (Benchmark: Spot Gold Price) A risk-return grid of s with respect to Benchmark index namely, Spot Gold Price is given the following table. IJSR - INTERNATIONAL JOURNAL OF SCIENTIFIC RESEARCH 155

Volume : 4 Issue : 3 March 2015 ISSN No 2277-8179 Table 4: Grid of Gold ETFs (Benchmark: Spot Gold Price) Low High ARf < ARm : sf > sm GOLD MAN SACHS AXIS BSL HDFC ARf < ARm : sf < sm ICICI IDBI KOTAK MOTILAL UTI RELIANCE RELIGARE SBI QUANTUM ARf > ARm : sf > sm ARf > ARm : sf < sm CRMF Low High A risk return grid has been formed to assess the performance of the selected gold ETFs with respect to Bench mark index namely, Spot Gold Price. It is found that, out of 14 ETFs, 13 funds were classified under low return high risk category and only one fund, namely CRMF, has high return but also high risk category when compared to Spot Gold Price. None of the funds could be classified under high return and low risk category. Also, none of the funds could be classified under low return and low risk categories. The return-risk grid shows that these funds could not outperform the bench mark index. i.e., market price of spot gold. The results show that risks associated with the ETFs are much higher than the risk associated with the purchase of gold and at the same time the returns on average, is lesser, when compared to buying spot gold in the market. Sharpe Measure Vs Spot Gold Price This measure indicates the extent of additional returns the portfolio can give to its investors for increase in its risk, in addition to risk free returns. Higher the ratio indicates higher additional returns for increased risk. Table 5: Sharpe measure of s (April 2009 to March 2014) Sharpe Measure Gold ETF Spot Gold Price GOLD MAN SACHS 0.089 0.126 AXIS 0.012 0.049 BSL 0.017 0.028 CRMF -0.097-0.162 HDFC 0.040 0.080 ICICI 0.040 0.080 IDBI -0.140-0.108 KOTAK 0.090 0.126 MOTILAL -0.135-0.162 UTI 0.090 0.126 RELIANCE 0.100 0.126 RELIGARE 0.094 0.129 SBI 0.084 0.125 QUANTUM 0.089 0.126 AVERAGE 0.027 0.049 Research Paper Table 5 compares the Sharpe s measure of reward to variability between s and the Benchmark index namely Spot Gold Price (SPR). It is seen from the table that many of the funds could not outperform their corresponding Benchmark index of the same period. The average Sharpe measure of the funds is 0.027 which has lesser than the Benchmark Sharpe of 0.049, in terms of additional returns, the s fetched to its investors. Reliance has the highest Sharpe measure (0.100) indicating highest additional returns for the increased risk, but corresponding Benchmark index is 0.126. Treynor Measures for s and Spot Gold Price This ratio or measure is also known as Reward to Volatility Ratio (RVOL). This ratio evaluates the performance of the systematic risk. Table 6 presents Treynor ratio of the schemes and benchmark portfolios. Table 6: Treynor Measure of s (April 2009 to March 2014) Treynor Measure Gold ETF Spot Gold Price GOLD MAN SACHS 5.005 0.573 AXIS 5.124 0.226 BSL 5.537 0.132 CRMF 4.769-0.619 HDFC 4.996 0.355 ICICI 5.002 0.355 IDBI 4.644-0.436 KOTAK 5.004 0.573 MOTILAL 4.604-0.619 UTI 4.971 0.573 RELIANCE 4.974 0.573 RELIGARE 5.139 0.585 SBI 5.015 0.571 QUANTUM 4.972 0.573 AVERAGE 4.982 0.244 Treynor ratio is the additional return earned by the fund over its systematic risk that is. It is seen from the table 6 that the average returns of s per unit of systematic risk are 4.982 times in addition to risk free returns. This is much higher than that of Benchmark index. All the funds have given positive returns indicating additional cover for increased systematic risk. The highest return is given by BSL and Religare (5.537 and 5.139) followed by Axis (5.124). The excess returns earned by the were comparatively higher than their corresponding Benchmark index in the respective periods. Jenson Measure of Differential on s and Spot Gold Price The Jenson measure basically identifies the ability of the fund manager to earn higher returns for the fund. Table 7: Jensen Measure of (April 2009 to March 2014) Alpha Equilibrium Value GOLD MAN SACHS 1.138-0.126 1.264 AXIS 0.789-0.175 0.964 BSL 0.827-0.039 0.866 CRMF 0.120 0.139-0.019 HDFC 0.934-0.169 1.103 156 IJSR - INTERNATIONAL JOURNAL OF SCIENTIFIC RESEARCH

Alpha Value Equilibrium ICICI 0.938-0.165 1.103 IDBI -0.064 0.024-0.088 KOTAK 1.151-0.118 1.269 MOTILAL -0.069-0.059-0.010 UTI 1.150-0.122 1.272 RELIANCE 1.199-0.069 1.268 RELIGARE 1.234-0.107 1.341 SBI 1.124-0.150 1.274 QUANTUM 1.147-0.129 1.276 AVERAGE 0.830-0.090 0.920 Out of 14 gold exchange traded funds, all funds except CRMF and IDBI yielded negative returns. On average the funds had made a loss, that is, of -0.09 times less than what they should have earned in the given level of systematic risk of all the funds, CRMF has earned higher returns (0.139) than other funds. Since all these funds are s and primarily depend on Spot Gold Price market, the fund manager s ability to earn higher returns is almost zero as evidenced from its alpha. Sharpe s Differential of s and Spot Gold Price Sharpe s differential return measures the ability of the fund manager in diversifying the portfolio. This indicates that higher the Sharpe s differential return, well diversified will be the portfolio. Table 8: Sharpe Differential of s (April 2009 to March 2014) Actual Expected Sharpe s Differential return GOLD MAN SACHS 1.138 1.334-0.196 AXIS 0.789 0.995-0.206 BSL 0.827 0.889-0.062 CRMF 0.120-0.273 0.393 HDFC 0.934 1.152-0.218 ICICI 0.938 1.152-0.214 IDBI -0.064 0.118-0.182 KOTAK 1.151 1.339-0.188 MOTILAL -0.069-0.228 0.159 UTI 1.150 1.339-0.189 RELIANCE 1.199 1.333-0.134 RELIGARE 1.234 1.425-0.191 SBI 1.124 1.340-0.216 QUANTUM 1.147 1.342-0.195 AVERAGE 0.830 0.947-0.117 Table 8 gives Sharpe measure for 14 gold exchange traded funds included in the study. The average Sharpe measure is found to be 0.117 indicating a negative return or a loss on returns, which indicates that an average of these funds have given no additional returns for any given level of fund market risk ratio. It is also seen from the table that the diversification of the portfolio was poor among many funds except CRMF (0.393) which is found to be highest among all the funds, followed by Motilal (0.159). Fama s Break up of s and Spot Gold Price In order to analyse the sample schemes return under Fama s components of investment performance, the returns are grouped into four components and their value under each component for the sample schemes are computed and presented in table 9. Volume : 4 Issue : 3 March 2015 ISSN No 2277-8179 Table 9: Fama s Components of Investment Performance (April 2009 to March 2014) Actual fund free Impact of Imperfect Diversification Net Selectivity GOLD MAN 1.138 0.681 0.583 0.069-0.195 SACHS AXIS 0.789 0.720 0.244 0.031-0.206 BSL 0.827 0.720 0.147 0.023-0.062 CRMF 0.120 0.711-0.787-0.197 0.393 HDFC 0.934 0.718 0.385 0.049-0.218 ICICI 0.938 0.718 0.385 0.049-0.214 IDBI -0.064 0.715-0.520-0.077-0.182 KOTAK 1.151 0.681 0.589 0.069-0.187 MOTILAL -0.069 0.711-0.778-0.161 0.159 UTI 1.150 0.681 0.592 0.066-0.188 RELIANCE 1.199 0.681 0.587 0.066-0.134 RELIGARE 1.234 0.713 0.627 0.084-0.191 SBI 1.124 0.684 0.591 0.065-0.216 QUANTUM 1.147 0.681 0.595 0.066-0.195 AVERAGE 0.830 0.701 0.231 0.014-0.117 Table 9 gives details of Fama s break up of components of fund return for s. Among the 14 funds, only 2 funds have positive net selectivity values and remaining 12 funds have negative values in net selectivity, and 11 funds have positive values and 3 funds have negative values in impact of and imperfect diversification, which are components of Fama s break up. Among these 14 funds, Religare has earned higher returns due to impact of (0.627) rather than diversification and net selectivity. Similarly Quantum (0.595) and UTI (0.592) have earned higher returns due to impact of rather than diversification and net selectivity. Overall, some funds have earned higher returns due to impact of and some funds have earned higher returns due to well diversified portfolio, rather than and Net selectivity. FINDINGS 1. The risk free returns for the study period works out of 0.701% on average per month. The average return of s is found to be 0.830% per month which is less than the market return of 0.945%. Also the average fund risk (5.483%) is found to be higher than the market average risk of 4.411%. Among the 14 s, IDBI and Motilal have given negative return ie., a loss of 0.064% and 0.069% respectively. Among the 14 funds, half of the funds have given returns more than 1%. As far as the fund risk is concerned, the Reliance and Goldman Sachs were found to have least risk of 5.165% and 5.166% respectively. The risk and return of each fund were compared with the risk and return of Benchmark index ie., spot gold price. 2. (t) is calculated to test whether the effect of on fund is significant or not. All the funds have significant betas. 3. It is observed that the average unique risk was found with 0.404 and the extent of diversification was found 0.772 ie., 77.2%. The highest unique risk of CRMF and Motilal is 1.062 and 1.001 respectively. At the same time their di- IJSR - INTERNATIONAL JOURNAL OF SCIENTIFIC RESEARCH 157

Volume : 4 Issue : 3 March 2015 ISSN No 2277-8179 versification comparatively lesser than other funds. These values place the CRMF and Motilal fund into more riskier place than other s. Out of 14 funds, only four funds namely, CRMF, BSL, IDBI and Motilal i.e., nearly one third of them, have more diversifiable risk than average. 4. It is found from the risk-return grid that none of the funds have fell in low risk and low return category. Only one fund namely, CRMF has high risk and high return. 5. It is observed that the average Sharpe measure of the funds was 0.027 which has lesser than the Benchmark Sharpe of 0.049, in terms of additional returns, the s fetched to its investors. Reliance has the highest Sharpe measure (0.100) indicating the highest additional returns for the increased risk, but corresponding benchmark index are 0.126. 6. It is learnt from the Treynor measure of s that all the funds have given positive returns indicating additional cover for increased systematic risk. The highest return is given by BSL and Religare (5.537 and 5.139) followed by AXIS (5.124). The excess returns earned by the funds were comparatively higher than their corresponding benchmark index in the respective periods. 7. It is observed from the Jenson measure that out of 14 s, all the 12 funds except CRMF and IDBI yielded negative returns. On average the funds had made a loss, ie., of 0.09 times less than what they should have earned in the given level of systematic risk of all the funds, CRMF has earned higher returns (0.139) than other funds. Since all these funds are s and primarily depend on spot gold price market, the fund manager s ability to earn returns is almost zero as evidenced from its alpha. 8. It is evinced from the Sharpe differential measure of s that the average Sharpe measure was found to be -0.117 indicating a negative return or a loss on returns, which indicates that an average of these funds have given no additional returns for any given level of fund-market risk ratio. It is indicated that the diversification of the portfolio was poor among many funds except CRMF (0.393) which is found to be highest among all the funds, followed by Motilal (0.159). 9. It is observed from the Fama s components of investment performance that among the 14 funds, Religare has earned higher returns due to impact of (0.627) rather than diversification and net selectivity. Similarly Quantum (0.595) and UTI (0.592) have earned higher returns due to impact of rather than diversification and net selectivity. However, CRMF (-0.197) and Motilal (-0.161) funds have failed in their ability to select stocks with superior returns as its net selectivity is negative. Research Paper CONCLUSION The Securities and Exchange Board of India (SEBI) should provide necessary guidelines to the gold exchange traded funds for disclosing transparent and reliable informations to the investors from time to time with regard to risk and return of schemes. The regulating authority ought to take necessary measures to reduce cumbersome formalities. In turn, these measures will help the s to enhance the funds manager ability for devising suitable reinvestment schemes and earning superior return. Eventually, the measures taken by the SEBI and gold exchange traded funds enable the investors to make prudent investment decisions and to overcome the problems with regard to making investment in s. REFERENCE 1. Barinder Singh and J. B. Nadda, Gold Vs Stock Market: A Comparative Study of and, IJBMR, Vol. 3, Issue 2, Jun 2013, pg.103-110. 2. 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Thenmozhi, Performance and Price Discovery of Gold Exchange Traded, http:// ssrn.com/abstract=2388421. 15. Sindhu, A Study on Impact of Select Factors on the Price of Gold, IOSR Journal of Business and Management, 2013, Vol.8 (4), pg. 84-93. 158 IJSR - INTERNATIONAL JOURNAL OF SCIENTIFIC RESEARCH