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Friday, April 22, 2011

Gold ETFs in India

Gold ETFs are nothing but exchange traded mutual fund schemes, which invest in 99.5 percent pure gold. Gold ETFs' value depends on the NAV (Net Asset value) of the underlying gold unit. One unit of gold ETF generally represents 1 gram of gold (QGold Half represents .5 gram).
Tax treatment: Taxation is same as that of non equity mutual funds.
As far as physical gold is concerned, one has to hold it for at least 3 years to be eligible for long term capital gain taxation, while  If gold ETF is  held for more than 1 year then long term capital tax gain is applicable, which is 10 % without indexation and 20% with indexation, whichever is lower.
If gold instruments are sold before completion of 1 year, then the income is added to investor’s annual income and is taxed according to the tax bracket in which investor falls in.

Benefits of Gold ETFs
(1)  Investor can buy and sell Gold ETF units like other shares
(2)  Buying and selling is done at real time prices and not on EOD (End of day) basis
(3)  Investors hold these units in demat form
(4)  No wealth tax is payable. This matters much for large investors
(5)  No STT is charged in the transactions
(6)  Even a One unit of Gold ETF could be purchased that too at the wholesale price and not on any premium
(7)  Investing in gold ETF diversifies the portfolio
(8)  Gold is a hedge against inflation, it means when inflation increases, gold prices also tend to increase
(9)  A ray of hope during financial crisis


Costs Involved: As ETFs are traded on the exchange, brokerage, management fees and taxes have to be borne by the investor, which is are collectively called as the expense ratio and is in the range of 1-2 percent.
These units are bought and sold at real time prices and not on EOD (end of day) price like other mutual fund units, thus gold ETF gives more transparency.
List of major gold ETFs in India
(1)GOLDBEES: This is one of the oldest and most popular gold ETF in India offered by Benchmark Asset Management Company.
(2)GOLDSHARE: This gold ETF is offered by UTI Asset Management Company.
(3)KOTAKGOLD: This gold ETF is from Kotak camp.
(4)RELGOLD: RelGold gold ETF belongs to Reliance mutual fund House which is a ADAG company.
(5)QGOLDHALF: QGoldHalf (QGF) is the unique and innovative product from Quantum Mutual Fund House; QGF represents .5 grams of underlying gold asset which enables investor to buy units in the multiples of .5 gram. Small investors who want to invest in gold could invest in units which are equivalent to ½ grams of gold.
(6)HDFCMFGETF: This gold ETF is offered by HDFC mutual fund house.
(7)IPGETF: An ICICI prudential Asset management company product.
(8)SBIGETS: A SBI mutual Fund product.
(9)RELIGAREGO: This gold ETF is from Religare mutual fund House.
(10) AXISGOLD: This the newest gold ETF fund from axis mutual Fund.
Face value of all above funds is 100 rupees.

Which gold ETF one should go for
One should go for that gold ETF, which has lowest expense ratio. Presently GoldBeEs and QGoldHalf have the lowest expense ratio of 1%.
Apart from expense ratio, what matters is the liquidity (traded quantity of units per day) of  gold ETF, so that one can easily sell his units when needed.
Yesterday (April 21, 2011), 76,255 units of GoldBeEs were traded at NSE, while only 365 units of QGoldHalf were traded.
So, by this time GOLDBEES is the best gold ETF to start accumulation.

Previous post: Investment in Gold

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