Skip to main content

ALL about buy Gold Exchange Traded Funds (ETFs)

Although gold ETFs and gold mutual funds belong to two asset classes, both offer good investment options

This article gives you a low down on how to buy Gold Exchange Traded Funds (ETFs) and gold mutual funds.


DIFFERENT ASSET CLASSES


The basic difference between gold ETFs and gold mutual funds are that they belong to two different asset classes. Gold ETFs give the investor the opportunity to invest in units of gold, which are then traded on the exchange as a single stock. The units issued under the scheme represent the value of gold held in the scheme. Gold ETFs hence fall into the category of commodities.


Gold mutual funds, however, fall into the equity category as they invest in equity and equity-related securities of gold mining companies. Since gold mining companies are not listed on Indian stock exchanges, the gold mutual funds invest in world gold funds that invest in gold mining companies across the world.


RETURNS AVAILABLE


The predominant criterion for all investment remains the returns that can be expected from these funds. An investor should expect a return of around 15% per annum over a two to three-year time horizon. The world gold fund has given absolute returns of 31.9% in the period since its inception in August 2007 to July 2008. The gold fund they invest into has given an annualised return of 29.5% over the last three years. However, most financial advisors advise that investment in gold must be made for the purpose of diversification and at any point in time, about 10-15% of your assets must be invested in gold.


NATURE OF FUNDS


There is also a strict difference with the regard to the aims of this fund and how they are managed.


Gold ETFs are known to follow a passive investment strategy. The fund simply buys and holds gold on behalf of the investor without actively managing it. The aim is to give returns as close as possible, post-expenses, to that given for gold as a commodity. However, when choosing between ETFs, investors need to be aware of the tracking error, which is the difference given by the gold ETF and those given by physical gold.


In fact, when investing in a mutual fund, the investor can rely on the expertise of a fund manager who indulges in active portfolio management and is able to make crucial decisions regarding selecting stocks of gold companies. The fund manager has an understanding of the quality of gold reserves to mined and will be able to decide which companies will do better than others.


THE MULTIPLIER EFFECT


The reason most gold mutual funds give for choosing a mutual fund is that stock prices of gold mining companies have risen much more than the price of gold itself. The GDM index, an index of gold miners, has moved up close to 6.5 times since 2000 as compared to a gold price increase of over three times in the same period. There is a multiplier effect on the profitability of gold mining companies with the rise in gold prices, on account on operating leverage.


COST BENEFITS


ETFs give investors the opportunity of buying as less as 1 unit on the exchange. Since investors can enter the trade through brokers, there is no entry or exit load and brokerage expenses are not very high. This is favourable in comparison to mutual funds, which have a defined load structure, entry and exit loads and other expenses. However, things like minimum unit size vary for investors who invest in ETF via asset management companies.


THE TRADING EDGE


The advantages of holding ETFs are seen during trading, given that ETF units can be traded like shares. It gives the investor the ability to buy and sell quickly at market price, making them highly liquid assets. Moreover, intra-day trading is also possible with an ETF, which is not possible with open-ended mutual funds. Moreover, portfolio disclosures occur only once a month in a mutual fund but everyday in an ETF.



Popular posts from this blog

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

Reliance Health Total

  Reliance Life Insurance has launched Reliance Health Total, a non-linked, non-participating and non-variable health insurance plan . It provides a fixed benefit cover for hospitalisation, critical illnesses and surgeries. The customer can also make a claim for over-the-counter health-related expenses. This is a regular-pay, five-year plan that can be renewed till the age of 99. The plan comes with two options: customers can choose a higher medical reimbursement benefit or a higher sum insured. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - I...

Right Size your SIPs in terms of tenure and amount

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)    Systematic investment plans ( SIPs ) are here to stay. Going by the growing number of SIPs, it does look like investors have taken to them in a big way. Today as much as . 1,000 crore flow into SIPs every month. A SIP, as the name denotes, is a method to invest a fixed amount in a mutual fund at regular intervals --generally monthly or quarterly. It is easy to do and the minimum amount with most mutual funds is a mere . 1,000 per month. You can write post-dated cheques for your investment, or give an auto-debit facility from your bank account. In fact, most investors today prefer setting up an auto debit for their SIPs, since writing cheques is cumbersome. Also, you can choose any tenure that you want for your SIP — six months, one year, five years, 10 years or even opt for a perpetual SIP which will continue forever till you stop it....

SBI Small Cap Fund

SBI Small Cap Fund scheme seeks to provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme by investing predominantly in a well diversified basket of equity stocks of small cap companies. SBI Small Cap Fund has widened its margin of outperformance relative to its category and benchmark in the last one year, earning itself a five-star rating. The fund shows a hefty 18 percentage-point outperformance relative to its peers in the last one year, 5 percentage points over three years and 4 percentage points over five years. Needless to say, it has also outpaced its benchmark to deliver convincing five-year annualised returns of 37 per cent. A believer in the credo that a small market cap does not reflect business quality, the fund looks for five attributes in the stocks it buys: competitive advantage, return on capital, growth, management and valuation. SBI Small Cap Fund is among the few in this space to remain at quite a man...

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now