PROJECT REPORT ON FINANCIAL PERFORMANCE & CUSTOMER AWARENESS OF

GOLD ETF IN INDIA

Submitted ByMRINAL KUMAR (BBA 4501/08)

1.0 INTRODUCTION

• Exchange Traded Funds (ETFs) are mutual fund units which investors buy/sell from the stock exchange, as against a normal mutual fund unit, where the investor buys /sells through a distributor or directly from the AMC.

• They are open ended mutual funds that are passively managed and most of them seek to mirror the return of an index, a commodity or a basket of assets. ETFs are listed and traded on stock exchanges like stocks.

1.1 CONCEPTUAL FRAMEWORK

ETF - The exchange-traded fund or ETF, is often structured as an open-end investment company. ETFs combine characteristics of both mutual funds and closed-end funds.

ETFs are traded throughout the day on a stock exchange, just like closed-end funds, but at prices generally approximating the ETF's net asset value.

Contd…

• Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock.

• Gold ETFs provided investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that participation through the trading of units on stock exchange.

ETF BASICS If the demand of the ETFs in the markets soars, the ETF

would start trading at a premium from its intrinsic value, which should be equal in proportion to the index that it is charting. This premium would make the buyers go to the fund house where they would have to redeem their shares in the proportion held under each unit of the ETF.

Such units that are bought directly from the fund house are called "creation units".

Usually the lot size in which one can buy creation units is so high that only an authorized participant (market maker) or institutional investors may have the wherewithal to buy these. In such case the retail investor would have to go to the market itself to buy the units of the ETF.

Contd…

• ETFs offer public investors an undivided interest in a pool of

units and other assets.

• ETFs do not sell or redeem their individual shares at net asset

value, or NAV. Instead, financial institutions purchase and

redeem ETF shares directly from the ETF, but only in large

blocks, varying in size by ETF from 25,000 to 200,000 shares,

called "creation units".

• Purchases and redemptions of the creation units generally are in

kind, with the institutional investor contributing or receiving a

basket of units of the same type and proportion held by the ETF

• An ETF is basically created through an initial public offering (IPO) by the Asset management companies in which only authorized participants, institutions, large investors are allowed to participate.

Advantages of Exchange-Traded Funds

• Lower costs • Buying and selling flexibility • Market exposure and Diversification • Continuous, Intraday Pricing• Access to indicators and Indexes• Diversity in Investment Opportunities• Low Expense Ratios• Transparency• Ability to Track an Entire Market Segment

GOLD ETF

Gold exchange-traded products are exchange-traded funds (ETFs), closed-end funds and exchange-traded notes that aim to track the price of gold.

The Gold ETF fund will purchase a large amount of gold, maintaining the physical metal in storage. They will then issue shares in baskets, the idea here being that the value of the shares will increase with the price of gold bullion.

1.3 COMPANY PROFILECOMPANY ALLOTMENT

DATEEXPENSE RATIO

ENTRY LOAD

EXIT LOAD NAV(22/3/2011)

GOLD BEES 08/03/2007 1% NIL NIL 2,033.07

GOLDSHARE 01/03/2007 1% NIL NIL 2,032.44

KOTAKGOLD 20/06/2007 1% NIL NIL 2,031.69

RELGOLD 15/10/2007 1% NIL NIL 1,977.99

SBIGETS 30/03/2009 1% NIL NIL 2,070.45

QGOLD 21/01/2008 1% NIL NIL 1,010.85

1.4 PROBLEM FORMULATION

• What is the Return on Investment of Gold ETFs over 1 and 2 year?

• What is the Standard Deviation among major Gold ETFs in India?

• What is the measure of Skewness of different Gold ETFs in India?

• What is the Coefficient of Correlation between the Gold ETF and Nifty Index Return?

• How is Gold ETF different from Mutual Funds?• What is the level of customer awareness among consumers

regarding investment avenues in Gold ETFs?

3.1 OBJECTIVES OF THE STUDY

• To provide an insight into the concept of Gold ETF and to study the benefits of investing in them.

• To analyze and compare the financial performance of various Gold ETF in India and their relation to market index movement.

• To ascertain the difference between Gold ETFs and Mutual Funds.

• To conduct a primary study to find out the awareness of the Gold ETF among investors and to ascertain the investment behavior relating to Gold ETF and other investment options in India.

3.2 RESEARCH METHODOLGY

RESEARCH DESIGN: Descriptive Research

3.3 SAMPLING FRAMEWORK

SAMPLING DESIGN: Convenience sampling

SAMPLE SIZE: 50 Respondents

Contd…

SOURCE OF DATA COLLECTION

PRIMARY DATA: The primary data was collected from the sample through sample survey with the help of questionnaire analysis.

SECONDARY DATA: The secondary data was collected through the National Stock Exchange website (http://www.nseindia.com) database for the past script price of the various Gold ETFs studied in this project and the index prices of NIFTY.

4.0 DATA ANALYSIS & INTERPRETATION

GOLDBEES GOLDSHARE KOTAKGOLD QUANTUMGOLD RELIANCEGOLD SBIGETS180

182

184

186

188

190

192

194

STANDARD DEVIATION(2YR)

GOLDBEES GOLDSHARE KOTAKGOLD QUANTUMGOLD RELIANCEGOLD SBIGETS0

0.02

0.04

0.06

0.08

0.1

0.12

SKEWNESS(2YR)

GOLDBEES GOLDSHARE KOTAKGOLD QUANTUMGOLD RELIANCEGOLD SBIGETS22.8

22.9

23

23.1

23.2

23.3

23.4

RETURN(1YR)

GOLDBEES GOLDSHARE KOTAKGOLD QUANTUMGOLD RELIANCEGOLD SBIGETS0

5

10

15

20

25

30

35

40

45

GOLD ETF RETURN(2 YR)

GOLDBEES GOLDSHARE KOTAKGOLD QUANTUMGOLD RELIANCEGOLD SBIGETS0.81

0.82

0.83

0.84

0.85

0.86

0.87

CORRELATION COEFFICIENT(2 YR)

GOLDBEES GOLDSHARE KOTAKGOLD QUANTUMGOLD RELIANCEGOLD SBIGETS

Series1 -0.02 -0.02 -0.03 -0.05 -0.04 0.11

-0.05

-0.03

-0.01

0.01

0.03

0.05

0.07

0.09

0.11

BETA ANALYSIS

YES NO0

10

20

30

40

50

60

70

80

90

Are you aware about Gold ETF?

YES NO

Series1 10 90

5152535455565758595

Do you invest in Gold ETF?

Less Volatility18%

Better Return9%

Safety36%

Electronic Form9%

Tradable9%

Portfolio Diversifica-tion9%

Others9%

Reasons for investing in Gold ETF

GOLDBEES18%

KOTAK GETF9%

UTI GOLDSHARE27%

SBI GETS27%

OTHERS18%

Which Gold ETF do you invest in?

FD GOLD ETF DEBT PHYSICAL GOLD MUTUAL FUND EQUITY REAL ESTATE INSURANCE0

5

10

15

20

25

30

35

40

45

50

Investment option preferred

A

B

C

D

E

SAFETY CAPITAL GAIN TIME PERIOD TAX BENEFIT FIXED INCOME ROI0

10

20

30

40

50

60

70

80

FACTORS INFLUENCING INVESTMENT

ABCDE

5.0 FINDINGS OF THE STUDY

• The degree of variability of the return is significantly lower than the degree of variability of the market index (NIFTY) as found from the analysis of Standard Deviation.

• The return generated by Gold ETF is more than returns provided by Debt Securities for 1 year and 2 year period showing a skewness towards the higher value of the range..

• The returns of Gold ETF have a positive degree of correlation with the market index (NIFTY).

• The Beta value of most of the Gold ETF is in negative indicating that they have a reverse relation to the market index return.

Contd..

• Majority of the investors lack awareness and knowledge about investment opportunities in Gold ETF schemes offered by various AMCs (Asset Management Companies) and hence do not invest in them.

• They prefer investment in other investment options which provide them with safety of their returns along with capital gain such as Fixed Deposits and Debt securities.

• ETF schemes provide several advantages over normal open ended Mutual Funds.

Contd..

• The other investment products investors prefer are Mutual Funds, Equity Shares, and Real Estate, Insurance.

• The factors affecting investment are safety of return, capital gain, return on investment and investment time period.

6.1 RECOMMENDATIONS OF THE STUDY

• AMCs should take steps to increase customer awareness regarding Gold ETF scheme investment options and the benefits of investing in them.

• Stock exchanges should also take steps to increase customer awareness with investor education and other awareness campaigns through advertising in newspapers, magazines and other advertisement media instruments.

Contd..

• Investors’ investing in gold should diversify portfolio in Gold ETF instead of investing in Physical gold.

• AMCs should provide more trading flexibility in Open ended Mutual Funds.

6.2 CONCLUSION

• Gold ETFs offer investors a convenient way and means of investing in gold as a security without the hassles of storage and safety.

• It also provides various other benefits such as electronic trading and Demat storage facility.

• Only few people were aware of the investment opportunities in Gold ETF and some means must be taken to educate and inform investors about the pros and cons of investing in Gold ETFs.

Contd..

• The financial performance analysis indicates that the returns provided were better than debt securities such as Fixed Deposits, Bonds, etc

• It also showed a positive degree of correlation between market index return (NIFTY 50) and the return provided by the various Gold ETFs.

6.3 LIMITATIONS OF THE STUDY

• The survey mainly includes the salaried service class people

which could lead to results being more biased towards them as

compared to business men.

• The sample size is small as compared to the number of

investors present in India does not include investors of other

geographical areas.

• Majority of the investors are not aware about the concept of

Gold ETF.

• Majority of the investors’ who invest in gold prefer physical

gold instead of Gold ETF.