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

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
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