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Below are the Factors one should before selecting a Gold ETF in India:
Gold ETF mode of investment in India is catching fast with the investing community. New and new mutual fund houses are coming with Gold ETF. With the new entries, Gold ETF industry is heating up and investor is getting lot of selection and variation nowadays. Before selecting a particular Gold ETF in India, you should consider the following points. These points helps you to make better decision in the selection of a Gold ETF in India.
1) Expense ratio
Gold ETFs are run by mutual fund industries. These mutual funds charge annual maintenance charges and fund managements expenses from you. These costs may decrease the value of your investment. Gold is not like equity where the latter give return from 10% to 30% on an average. Gold is a fine investment if it gives a return of minimum of 5%. Anything more than that is a bonus. So with this type of return, if the fund houses charges more costs and expenses, then your investment reduces by that much. So always select the Gold ETF which is charges less expenses.
2) Average Daily Volume of the Gold ETF traded in the exchanges.
Find out in various financial websites and exchange's websites, the daily volume traded for the particular Gold ETF. If the Volume is too low, then skip that Gold ETF. If the volume is too low then you have increase your purchase price and reduce your selling price. So you may be at a loss. You may not get the market price of the Gold due to decrease in the volume.
3) Tracking errors
A Gold ETF's NAV is deemed to represent the market price of the Gold at a particular time. It is not necessary to be so. Tracking error is how much a Gold ETF varies with the market price of the Gold. More the tracking error of the Gold ETF, more the variation of the Gold ETF from the market price of the Gold. If the tracking error is low, then it is a sign that the Gold ETF is going in the same way with that of the Market price of the Gold. Investor should select the Gold ETF with lower tracking error. Tracking errors are possible due to fund management expenses, illiquidity of Gold, large buy and sell orders, etc.
1) Minimum Investment
In India Gold ETFs are available for investment from Rs.5000 to Rs.20000. Go with the Gold ETF which is going well along with your financial capacity and financial goals.
2) Impact costs
Impact cost in Gold ETF is related with Volume of the Gold ETF traded in the Exchanges. Lower the volume of the Gold ETF traded, high may be the Impact costs. When the volume is low, the bid and ask spread is high. You have to increase your purchase price in order to buy the Gold ETF and you have to reduce the Sales price in order to get the Gold ETF. One should select and invest in a Gold ETF which is having less impact cost.
6)Plan type
Two type of Gold ETF plans are available for investment in India.
a) Dividend option and
b) Growth option.
In dividend option you will be getting dividends, when the price of Gold increases dramatically. But you have to pay dividend distribution tax.
In the Growth option, no dividends, so no dividend distribution tax, only long term capital gain tax which is applicable after one year.
Always consult your financial consultant before taking decision about the investment in Gold ETF.
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