Gold Fund Project Final College

8/9/2019 Gold Fund Project Final College

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A Project Report

On

GOLD FUNDS

A project submitted in a part completion of

First Year of Post Graduate Diploma in Business Management

Submitted By:

Ms. SHRUTI RAGHAV SHETTY

Under the Guidance of:

Prof: CHETAN KADAM

Rizvi Academy of Management,

Off Carter road, Bandra (W)

Mumbai 400050.

2008 2010


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DECLARATION

I, SHRUTI RAGHAV SHETTY ofRIZVI ACADEMY OF MANAGEMENT hereby declare

that I have completed this project on GOLD FUNDS. in the Academic Year2008-2010. The

information submitted is true and original to the best of my knowledge.

Signature of the Student

(SHRUTI SHETTY)


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RIZVIMANAGEMENTINSTITUTES

CERTIFICATE

I, Prof. CHETAN KADAM hereby certify that SHETTY SHRUTI RAGHAV of RIZVI

ACADEMY OF MANAGEMENT has completed this project on GOLD FUNDS in the

Academic Year 2008-2010. The information submitted is true and original to the best of my

knowledge.

Signature of Project Guide Signature of the Director

(Prof. CHETAN KADAM) (Prof. KALIM KHAN)


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ACKNOWLEDGEMENT

This project was a great learning experience for me. During this project I have interacted with

many people to whom I should be always obliged, and thankful. Though this project bears my

name I would like to say that it was a joint efforts all the people who I am acknowledging. This

project bears the imprints of these hard to forget people.

First of all I would like to acknowledge my project guide Prof. CHETAN KADAM who has

been a helping hand for me while making it. Who guided me in every possible aspect.

Secondly I would like to appreciate my college, for giving me an opportunity to make a project

on such a wonderful topic, which added a lot to my knowledge.

Next I would like to mention and appreciate my parents for cooperating with me while making

this project.

My overriding debt continues to be my lovely friends who provided me with the time, support,

and inspiration needed to prepare this project

ITS TRULY OUR PROJECT.

SHRUTI RAGHAV SHETTY


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INDEX

Sr. No. Subject Page Nos.

1 Investment Options 1 - 4

2 Gold Investment Option 5 - 14

3 Gold Exchange Traded Fund 15-19

4 Gold Funds 20-21

5Gold Exchange Traded Fund V/S Physical

Gold 22 -25

6 Limitation of Gold Exchange Traded Fund 26

7 Performance of Funds 27 -30

8 Seven Gold Investment Advices 31-32

9

Future Prospects 33

10 Conclusion 34

11 Bibliography 35


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It is important that an investor who chooses to invest in a any fund takes the time to research

what investment is best for him/her. Furthermore, once the investor has chosen a particular

fund, it is extremely important that he/she read over the fund information very carefully.

I. INVESTMENTA.Definition

Money committed or property acquired for future income. Trade off between risk and rewardwhile aiming for incremental gain and preservation of the invested amount (principal). Incontrast, speculation aims at 'high gain or heavy loss,' and gambling at 'out of proportion gain ortotal loss.'

Two main classes of investment are (1) Fixed income investment such as bonds, fixed deposits,preference shares, and (2) Variable income investment such as business ownership (equities),property ownership. In economics, investment means creation of capital or goods capable ofproducing other goods or services. Expenditure on education and health is recognized as aninvestment in human capital, and research and development in intellectual capital. Return oninvestment (ROI) is a key measure of a firm's performance.

B.What Does Investment MeanThere is a clear difference between saving and investment.

Savings:

Savings are generally funds that you set aside to meet your future needs. These could be taking

your family for a small holiday or buying an electronic item. Another important feature of

savings is that these can be accessed relatively quickly. The most universal way of saving is in to

a bank account ('savings' account) where the money is available to you on demand.

Investments:

An investment, on the other hand, is what helps you meet your longer term needs and largerfinancial goals. There is some level of risk attached to all types of investments and this is what

determines the returns on your investments. The higher the risk, the greater the chances of a

higher return. There are various investment types along the risk-return spectrum.


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C.Investment OptionsAn investor has numerous investment options to choose from, depending on his risk profile and

expectation of returns. Different investment options represent a different risk-reward trade off.

Low risk investments are those that offer assured, but lower returns, while high risk investments

provide the potential to earn greater returns. Hence, an investors risk tolerance plays a key role

in choosing the most suitable investment.

Banks today provide a range of investment options, including international investing, investing

in commodities, stocks, bonds, precious metals and investment funds. Other options for investing

include certificates of deposit, futures and investment clubs.

All investment options have their inherent risk and benefits. For instance, international investing

is prone to social, political, economic and currency risks, while fixed income investing is prone

to interest risks.

There are various investment options available some of them are:

Savings Bank Account

Money Market Funds (also known as liquid funds)

Bank Fixed Deposit (Bank FDs)

Post Office Savings Schemes (POSS)

Public Provident Fund (PPF)

Company Fixed Deposits (FDs)

Bonds and Debentures

Mutual Funds

Life Insurance Policies

Equity Shares

D.Why Should You Invest Inflation is constantly increasing the cost of goods and services and eating into the value of

your income and wealth. You need to save money and invest it well so that the value of everyrupee is augmented.

Higher life-expectancy means people live longer and hence, need more money to maintaintheir living standards.

Investing selectively allows you to enjoy tax benefits. By investing wisely you can improve your standard of living and create wealth for the future


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E.Factors Which Influence The Decision To Invest Past market trends:

Sometimes history repeats itself; sometimes markets learn from their mistakes. You need tounderstand how various asset classes have performed in the past before planning yourfinances.

Your risk appetite:

The ability to tolerate risk differs from person to person. It depends on factors such as yourfinancial responsibilities, your environment, your basic personality, etc. Therefore,understanding your capacity to take on risk becomes a crucial factor in investment decisionmaking.

Investment horizon:

How long can you keep the money invested? The longer the time-horizon, the greater are thereturns that you should expect. Further, the risk element reduces with time.

Investible surplus:

How much money are you able to keep aside for investments? The investible surplus plays avital role in selecting from various asset classes as the minimum investment amounts differand so do the risks and returns.

Investment need:

How much money do you need at the time of maturity? This helps you determine the amountof money you need to invest every month or year to reach the magic figure.

Expected returns:

The expected rate of returns is a crucial factor as it will guide your choice of investment.Based on your expectations, you can decide whether you want to invest heavily into equitiesor debt or balance your portfolio.


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F.FINANCIAL AND INVESTMENT PLANNINGFinancial planning is a plan to save and spend your future income. It should be carefullybudgeted. When you do your investment planning, you must budget for both big and smallspends. Financial planning needs to account for expenses like rent, utilities, and food per month.

When Financial planning, you must think about short term and long term savings. Afterexpenses, you must set aside money for savings every month. Most people who are financialplanning believe in setting aside 20% of monthly income towards savings. For long term savings,your best investment options should be explored.

Financial planning can be an investment planning. You put a portion of savings into assets.Investment planning carefully ensures these assets increase your money. There are variousinvestment options in the form of assets: stocks, shares, mutual funds.

Financial planning will allow you to make major purchases in your life. You cannot buy a house

or a car without proper investment planning, and the right investment options will allow you toenjoy your retirement.

Financial planning isnt something that happens by itself. It requires focus and discipline. Manypeople think that the future will take care of itself. Good financial planning means that yourdream car will not be a dream, but a reality. Investment planning means that you can take care ofyour family, exploring your best investment options to give them everything you want in life.Financial planning means that you take care of your future.

Financial planning for your retirement should start at an early age. Many people think that theirchildren or job will take care of their pension, but this is not always the case. Ensure that your

retirement is a comfortable one by making wise investment plans, so you can maintain a lifestylein your retirement that you enjoyed throughout your life.

Different investments suit different people at different stages in their lives. And each one has its

own level of risk and reward. The basic rule of thumb? The greater the risk, the greater the

potential reward. And vice versa.


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I think the safest investment today is Gold. Gold has proved as the best investment that resist

from any bad economic climate. Gold has been using everywhere as the currency. Gold may be

volatile, but it stronger than dollar, Euro, and Pound sterling. Gold does not depend on economic

of a country. On the other hand, currency depends on economic condition. For example, Dollar is

decreasing relative to foreign currency after Subprime default.

In bad recession in 1980, Gold could give return up to 130%. On the other hand, Stock as

measured market Index only gives you 13%. I think you should convert some stock into some

gold. You can sell gold anytime and buy anything with it.

Gold is stable commodity because the demand will not deplete. People need Gold for jewel,

electronic, watch, computer, etc. Gold is the best metal for electronic. Gold is acceptable

currency all the word. You can exchange gold at anywhere.

II. GOLD AS AN INVESTMENT OPTIONA.GoldA very ductile and malleable, brilliant yellow precious metal that is resistant to air and water

corrosion.

It is a precious metal that is very soft when pure (24 Kt.). Gold is the most malleable

(hammerable) and ductile (able to be made into wire) metal. Gold is alloyed (mixed with other

metals, usually silver and copper) to make it less expensive and harder. The purity of gold

jewelry is measured in karats. Some countries hallmark gold with a three-digit number thatindicates the parts per thousand of gold. In this system, "750" means 750/1000 gold (equal to

18K); "500" means 500/1000 gold (equal to 12K). Alloyed gold comes in many colors.

B.Indian Gold Markety Gold is valued in India as a savings and investment vehicle and is the second preferred

investment after bank deposits.

y India is the world's largest consumer of gold in jewellery as investment.

y In July 1997 the RBI authorized the commercial banks to import gold for sale or loan to

jewellers and exporters. At present, 13 banks are active in the import of gold.

y This reduced the disparity between international and domestic prices of gold from 57

percent during 1986 to 1991 to 8.5 percent in 2001.


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y The gold hoarding tendency is well ingrained in Indian society.

y Domestic consumption is dictated by monsoon, harvest and marriage season. Indian

jewellery offtake is sensitive to price increases and even more so to volatility.

y In the cities gold is facing competition from the stock market and a wide range of consumer

goods.

y Facilities for refining, assaying, making them into standard bars in India, as compared to

the rest of the world, are insignificant, both qualitatively and quantitatively.

C. GOLD THROUGH THE AGES

The history of gold begins in remote antiquity. But without hard archaeological evidence to

pinpoint the time and place of man's first happy encounter with the yellow metal, we can only

conjecture about those persons, who at various places and at different times first came upon

native gold. Experts of fossil study have observed that bits of natural gold were found in Spanish

caves used by the Paleolithic Man about 40,000 B.C. Consequently, it is not surprising that

historical sources cannot agree on the precise date that gold was first used. One states that gold's

recorded discovery occurred circa 6000 B.C.

Another mentions that the pharaohs and temple priests used the relic metal for adornment inancient Egypt circa 3000 B.C. However, it is curious to note that the early Egyptian's medium of

exchange was not gold but barley. The first use of gold as money in 700 B.C. is claimed by the

citizens of the Kingdom of Lydia (western Turkey). Surely, you remember the kingdom of the

famous fortune seeking King Croesus - circa 550 B.C.

D.GOLD AS AN INVESTMENT OPTIONThere are many savings and investment options available in India. One of the options is gold.Gold has been valued since prehistoric times and is the investment option that has been seen asthe ultimate form of safe haven investment and the only true form of wealth. Gold has beenpopular in India because it acted as a good hedge against inflation. There is so much uncertaintyin the world in terms of economic growth and geopolitics, it is no surprise that many investors,big and small have chosen to hedge their investments through gold.


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Gold is an important and popular investment for many reasons:

Gold remains as an integral part of social and religious customs, besides being the basic formof saving.

Gold has aesthetic appeal .Its beauty recommends it for ornament making above all other

metals.

Gold is indestructible which does not tarnish and is also not corroded by acid-except by amixture of nitric and hydrochloric acids.

Gold is a currency that has no borders and does not need to be honoured by anygovernmental obligations.

Gold has long proven ability to retain value and appreciate in value.

Gold is readily available in a standardized form.

E.Uses of goldGold has been prized by people since the earliest times for making statues and icons and also forjewelry to adorn their bodies. Intricately sculptured art objects and adornment jewelry have beenuncovered in the Sumerian royal Tombs in southern Iraq and the tombs of Egyptian kings.Significant buildings and religious temples and statues have been covered with thinly beatensheets of gold. Due to its rarity, gold has long been considered a symbol of the wealth and powerof its possessor.

In 2001, it was estimated that 2870 tons of gold were produced worldwide. About 80 percent of

that gold production was used to make jewelry, the majority of which was sold in India, Europeand the United States of America. Gold jewelry is universally popular, loved for its lustrousyellow color and untarnishing character. In many Asian countries, such as India, Thailand, andChina, gold is important to religious ceremonies and social occasions, such as the Chinese NewYear and Hindu marriages in India.


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F. Gold better than equities:According to the World Gold Council, investing in gold is considered to be safer than traditionalinvestments in equities and bonds since gold is the commodity where the price is determined byvarious factors apart from its demand and supply. Also, it is a commodity that is priced in US

Dollars as against our local currency. The factors that affect the price of gold are rather differentfrom factors that affect other assets like say domestic fixed deposits. Inflation will have noimpact on the price of gold, other factors remaining the same thereby lending support to yourwealth. In fact, in times of inflation, more money tends to move to gold, thereby driving up itsprice.

The last few years show a steep rise in oil prices resulting in a rise in inflation not only in Indiabut globally. The impact has been varied across countries depending on factors such as economiccycle and oil consumption. This general price rise has added to the attractiveness of gold.

In other words when the stock market crashes or when the dollar weakens, gold continues to be a

safe haven investment because gold prices rise in such circumstances.

G.Why is gold a good investmentWhether or not gold is a good investment, is a question that does not have a simple answer. Goldhas appreciated substantially over the past couple of years. The growth rate of late has beenmuch higher than the conventional rate of appreciation. However, if we look at the past 15-20years record, it is seen that Gold is a hedge against inflation. Over the last 20 years, the averagereturn from Gold has been around 7%. So, if the past trend continues, one could expect around

say 6-9% returns from gold in the long-term.

Also, another aspect that we should look at is a weakening currency. No matter which countryyou originate from, there is a chance that your countrys currency will suffer a downfall at aparticular point of time. Gold, on the other hand, retains its true value and can help you protectyour riches because it does not rely on the state of the countrys economic, whether it is on theup or downtrend. Therefore, investing a small portion of ones investment portfolio in goldwould be a good idea.


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GOLD PERFORMANCE DURING CURRENT FINANCIAL CRISIS

SOURCE: DataStream, As at 13th March 2009.


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H.Gold investment options:Not many people know that there are various investment options in gold like gold bars,

numismatic coins, and gold accumulation plans by banks and financial institutions, and goldmutual funds.

Across the world, several investment options are available for investors to put their money in theyellow metal.

Gold savings accounts: They operate like regular bank accounts where the customers accountis credited with balances of gold and withdrawals can be either in the form of gold coins orcurrency equivalents.

Gold accumulation plan: A monthly debit from customer's savings account is backed by 100percent Physical gold.

Gold chits: Also there are gold chits run by jewelers where at the end of the year, housewivescan buy gold jewellery or coins from the same jeweler worth the total money they have paidin instalments.

Gold deposit scheme: It is one of the options to invest in gold where one can keep gold inbanks for specified period like a fixed deposit and can claim as and when required .But it isnot like pledging as the ornaments will not be returned in its original form because the banksmelt them and rent to the industry.

I-gold: An investor can purchase gold from a stock broker as just as he used to buy equityshares.

Mutual Funds and Buying gold as ornaments are other options. Realizing the potential for Gold as a safe investment option World Gold Council has made

several suggestions regarding this matter. These include allowing banks to offer gold backedinvestment products and gold loans to local jewelers.

i. Coins and small barsThe first gold coins were struck by King Croesus, ruler of Lydia in western Asia Minor from 560to 546BC, whose wealth came from the gold from the mines and sands of the River Pactolus.Gold coins have been legal tender ever since. Bullion coins and small bars offer private investorsan attractive way of investing in relatively small amounts of gold. In many countries - including

the whole of the European Union - gold purchased for investment purposes is exempt fromValue Added Tax.

Bullion coins

Investors can choose from a wide range of gold bullion coins issued by governments across theworld (see panel, below right). These coins are legal tender in their country of issue for their facevalue, rather than for their gold content. For investment purposes, the market value of bullion


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coins is determined by the value of their fine gold content, plus a premium or mark-up that variesbetween coins and dealers. The premium tends to be higher for smaller denominations. Bullioncoins range in size from 1/20 ounce to 1000 grams, although the most common weights (in troyounces of fine gold content) are 1/20, 1/10, 1/4, 1/2 and 1 ounce. It is important not to confusebullion coins with commemorative or numismatic coins, whose value depends on their rarity,

design and finish rather than on their fine gold content. Many dealers sell both.

Small gold bars

Gold bars can be bought in a variety of weights and sizes, ranging from as little as one gram to400 troy ounces (the size of the internationally traded London Good Delivery bar). Small barsare defined as those weighing 1000g or less. According to industry specialists Gold BarsWorldwide, there are 94 accredited bar manufacturers and brands in 26 countries, producing atotal of more than 400 types of standard gold bars between them. They normally contain aminimum of 99.5% fine gold.

ii. Gold accountsGold bullion banks offer two types of gold accounts - allocated and unallocated:

Allocated account

Effectively like keeping gold in a safety deposit box, this is the most secure form of investmentin physical gold. The gold is stored in a vault owned and managed by a recognised bullion dealeror depository. Specific bars (or coins, where appropriate), which are numbered and identified by

hallmark, weight and fineness, are allocated to each particular investor, who pays the custodianfor storage and insurance. The holder of gold in an allocated account has full ownership of thegold in the account, and the bullion dealer or depository that owns the vault where the gold isstored may not trade, lease or lend the bars except on the specific instructions of the accountholder.

Unallocated account

Investors do not have specific bars allotted to them (unless they take delivery of their gold,which they can usually do within two working days). Traditionally, one advantage of unallocatedaccounts has been the lack of any storage and insurance charges, because the bank reserves the

right to lease the gold out. Now that the gold lease rate is negative in real terms, some bankshave begun to introduce charges even on unallocated accounts. Investors are exposed to thecreditworthiness of the bank or dealer providing the service in the same way as they would bewith any other kind of account. As a general rule, bullion banks do not deal in quantities under1000 ounces - their customers are institutional investors, private banks acting on behalf of theirclients, central banks and gold market participants wishing to buy or borrow large quantities ofgold.


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Other opportunities for smaller investors include:

Gold pool accounts

There are alternatives for investors wishing to open gold accounts holding less than 1000 ounces.

For instance, in Gold Pool Accounts - where you have a defined, unsegmented interest in a Goldaccounts pool of gold - you can invest as little as one ounce.

Electronic currencies

There are also electronic 'currencies' available - linked to gold bullion in allocated storage -which offer a simple and cost-effective way of buying and selling gold, and using it as money.Any amount of gold can be purchased, and these currencies allow gold to be used to send onlinepayments worldwide.

Gold Accumulation Plans

Gold Accumulation Plans (GAPs) are similar to conventional savings plans in that they are basedon the principle of putting aside a fixed sum of money every month. What makes GAPs differentfrom ordinary savings plans is that the fixed sum is invested in gold. A fixed sum of money is-withdrawn automatically from an investor's bank account every month and is used to buy goldevery trading day in that month. The fixed monthly sums can be small, and purchases are notsubject to the premium normally charged on small bars or coins. Because small amounts of goldare bought over a long period of time, there is less risk of investing a large sum of money at thewrong time. At any time during the contract term (usually a minimum of a year), or when theaccount is closed, investors can get their gold in the form of bullion bars or coins, and sometimeseven in the form of jewellery. Should they choose to sell their gold they can also get cash.

iii. Gold certificatesHistorically, gold certificates were issued by the U.S. Treasury from the civil war until 1933.Denominated in dollars, these certificates were used as part of the gold standard and could beexchanged for an equal value of gold. These U.S. Treasury gold certificates have been out ofcirculation for many years, and they have become collectibles. They were initially replaced bysilver certificates, and later by Federal Reserve notes.

Nowadays, gold certificates offer investors a method of holding gold without taking physicaldelivery. Issued by individual banks, particularly in countries like Germany and Switzerland,they confirm an individual's ownership while the bank holds the metal on the client's behalf. Theclient thus saves on storage and personal security issues, and gains liquidity in terms of beingable to sell portions of the holdings (if need be) by simply telephoning the custodian.

The Perth Mint also runs a certificate programme that is guaranteed by the government ofWestern Australia and is distributed in a number of countries.


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A number of collective investment vehicles specialise in investing in the shares of gold miningcompanies. The term "collective investment vehicles" as used here should be taken to includemutual funds, open-ended investment companies (OEICs), closed-end funds, unit trusts, and any

similar structures. A wide range of such funds exists and they are domiciled in a number ofdifferent countries. These funds are regulated financial products and as such it is not possiblehere to provide details on any specific funds.

Funds are likely to differ in their structure - some may invest simply in the shares of gold miningcompanies, some may invest in companies that mine minerals other than gold, some may investin futures as well as mining equities and some may invest partly in mining equities and partly inthe underlying metal (s).

It would be misleading to equate investment in a gold mining equity with direct investment ingold bullion as there are some significant differences. The appreciation potential of a gold

mining company share depends on market expectations of the future price of gold, the costs ofmining it, the likelihood of additional gold discoveries and several other factors. To a degree,therefore, the success of the investment depends on the future earnings and growth potential ofthe company.

Most gold mining equities tend to be more volatile than the gold price. While they are subject tothe same risk factors that influence the prices of most other equities there are additional riskslinked to the mining industry in general and to individual mining companies specifically.

iv. Structured productsThe market for structured products is dominated by institutional investors - or, in the case offorwards, by gold market professionals - because the minimum investment can be high. Thefollowing is a general overview of what these products are like and how they work.

Forwards

Like futures, forward contracts are agreements to exchange an underlying asset - in this case,

gold - at an agreed price at some future date. They can therefore be used either to manage risk orfor speculative purposes. But there are important differences between forwards and optionstraded in the over-the-counter (OTC) gold market on the one hand, and futures and optionstraded on one of the exchanges on the other:

y a forward contract (or OTC option) is negotiated directly between counterparties and istherefore tailor-made, whereas futures contracts are standardised agreements that are tradedon an exchange


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y although forward contracts offer a greater flexibility and are private agreements, there is adegree of counterparty risk, whereas futures contracts are guaranteed by the exchange onwhich they are traded

y because futures contracts can be sold to third parties at any point before maturity, they aremore liquid than forward contracts (whose obligations cannot be transferred).

Gold-linked bonds and structured notes

Gold-linked bonds are available from the world's largest bullion dealers and investment banks.Their products provide investors with some combination of:

y exposure to gold price fluctuationsy a yieldy principal protection.

Structured notes tend to allocate part of the sum invested to purchasing put/call options

(depending on whether the product is designed for gold bulls or bears). The balance is investedin traditional fixed income products, such as the money market, to generate a yield. They can bestructured to provide capital protection and a varying degree of participation in any priceappreciations depending on market conditions and investor preferences.

Indians account for 23 per cent of the world's total annual demand for gold.

And now we have got one more way to invest in the yellow metal. The new

and the most popular method on which investors are relying that is: Gold

Exchange Traded Fund and Gold funds.


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III. GOLD EXCHANGE TRADED FUNDA.History

The idea of gold ETF was first officially conceptualised by Benchmark Asset ManagementCompany in India when they filed a proposal with the SEBI in May 2002. However it did not

receive regulatory approval and was only launched later in March 2007.The first gold exchange-

traded fund actually launched was in March 2003 on the Australian Stock Exchange under Gold

Bullion Securities (ticker symbol "GOLD"). Gold Bullion Securities (GBS) are fully backed by

gold which is both deposited and insured. GBS was launched to give financial institutions and

private investors the ability to own gold and gain exposure to the price, without the

inconvenience of storing physical bars or opening a futures trading account. In United States,

first Gold ETF was launched in 2004.

B.What Are Gold ETFsA Gold exchange-traded fund (or GETF) is a special type of exchange-traded fund (ETF) that

tracks the price of gold. Gold exchange-traded funds are traded on the major stock exchanges

including Zurich, Mumbai, London, Paris and New York.

Also known as paper gold, Gold ETFs are mutual fund schemes that invest in standard gold

bullion (99.5% purity). They are special types of exchange traded funds (ETFs) which tracks

the prices of gold (i.e. whose value is based on price of gold) and are convenient and inexpensive

alternative to owning physical gold.

These Gold Exchange Traded Funds (GETFs) will be buying gold for you, with your money, and

converting it into paper. Gold ETFs are open-ended mutual fund schemes that will invest the

money collected from investors in standard gold bullion (0.995 purity). This paper, which may

be in a physical, or dematerialized, form, is called a unit. A unit of a mutual fund is exactly like

the share/ stock of a company; it can be bought and sold in the stock exchange.

According to Wikipedia, "exchange-traded funds (or ETFs) are what you might call open ended

mutual funds that can be traded at any time throughout the course of the day. Typically, ETFs tryto replicate a stock market index such as the S&P 500 (IVV) or the Hang Seng Index, a market

sector such as energy or technology, or a commodity such as gold or petroleum; However, as

ETFs proliferated in 2006 from under one hundred in number to almost four hundred by the end

of the year, the trend has been away from these simpler index-tracking funds to intellidexes and

other proprietary groupings of stocks."


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The legal structure of EFTs tends to vary around the world but the common features such as

being an exchange listing with the ability to trade continually and being are index-linked rather

than actively managed continue to exist.

Gold ETFs are backed by physical gold stored in a vault. Investors can buy a share that says they

own an interest in the gold to the value purchased. The EFT's custodians create or redeem blocksof shares based on market demand for the ETF. When demand for the ETF shares is high and

exceeds the current stocks of gold, more gold needs to be put in the vault to back the newly

created shares so under this scenario, the ETF would take gold off the open market. With the

volume of gold now traded as EFT this can contribute to the value of gold increasing as less of it

becomes mobile.

Experts and traders alike promote the ease of trading in gold ETFs and electronic forms of

owning gold. It has become the lazy gold investors tool. No requirements for delivery, storage or

resale. No security risks as the gold remains safely deposited in bank vaults around the world andeven when the ownership of any portion of that gold changes, the gold itself does not physically

move.

"These funds do not have to hold gold-mining shares, but gold itself," Julian Phillips, an analyst

at GoldForecaster.com once explained. That impacts the gold price directly, "whereas the gold-

mining shares never did," he said.

The original idea of gold EFTs may have came out of India, one of the leading users of gold. But

it was the west that took it up with a vengeance!

Your expenses in an ETF would be very low: you would pay securities transaction tax (STT),

brokerage /service tax, and the like, which are unlikely to exceed around 1% of market price.

Youd hold gold in demat form in your demat account, just as you hold shares. If you decide to

sell your ETF units, you can do so through your stock broker or sub-broker and the charges

would be the same as what you paid while buying the ETF. Thus an ETF is very convenient, and

you need not worry about the purity of the gold, secure storage, insurance against theft, and so

on.


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C.Returns of Gold ETFsReturns of all Gold ETFs schemes are almost same and more or less similar to physical

gold because they are passively managed fund and closely track the performance and yield of

gold in the spot market. Put simply, they just hold physical gold on behalf of investors and

no active fund management (to take advantage of price fluctuation in gold) is involved.

D. How are Gold ETFs taxed under Income Tax Act, 1961Gold ETFs schemes are treated like non-equity mutual funds for the purpose of taxation.

So, the gains attract short term capital gains (STCG) tax if held for less than one year and

long term capital gains (LTCG) tax if the period of holding is more than a year. As far as

dividend distribution tax (DDT) is concerned, the question doesnt arise as none of the Gold

ETFs in India have declared any dividend so far.

E.How to invest in Gold ETFsGold ETFs are listed and traded on national stock exchange (NSE). They are held in

demat form just like the stocks. You require a DMAT account to invest in them (and for

that you also require a PAN). Besides, you also require a trading account with a broker

(who is a member of NSE).

Typically, each unit in Gold ETF represents one-tenth of an ounce of gold. In other words,

small sum is required to gain exposure to the gold price. For example, while in case of

Gold Benchmark Exchange Traded Fund (GOLDBEES), each unit corresponds to one gram of

gold, Quantum Gold Exchange Traded Fund (QGOLDHALF) is available in 0.5 grams of gold.

F. What are the benefits of investment in gold ETFWhen you go to a bank or a jeweller to buy gold, you have to pay a certain premium. As aresult, returns shrink. A premium of 20% if charged on small coins of five gram each and 5-10% on gold coins weighing more than five grams. When you go to the jewellers to sell thegold, it is taken back on a discounted price. Apart from this, you have to keep your gold inlockers and pay for the locker facility.


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G.How many units will U getCost of one unit of GETF = Cost of one gram of gold on the date of allotment.

This is the standard adopted by both the schemes mentioned above.

Assume that the date of allotment is March 12 and the cost of one gram of GETF then is Rs 1,000.

Ideally, you must get 10 units of GETF. However, this is not the case.

Most mutual fund schemes impose a kind of tax called 'load' while buying or selling units. The former is

called 'entry load' and the latter is called 'exit load'.

H.Currently available Gold ETFs in IndiaAs of now, there are six gold ETFs available in India; one each by Reliance, UTI, Benchmark,

Quantum and Kotak fund house.

The NSE symbols of Gold ETFs are (GOLDBEES, GOLDSHARE, KOTAKGOLD, RELGOLD

and QGOLDHALF)

Gold Benchmark Exchange Traded Fund --> GOLDBEES

UTI Gold Exchange Traded Fund --> GOLDSHARE

Kotak Gold Exchange Traded Fund --> KOTAKGOLDReliance Gold Exchange Traded Fund --> RELGOLD

Quantum Gold Exchange Traded Fund --> QGOLDHALFState Bank of India Exchange Traded Fund --> SBIG

For Example:

Let us factor in the entry load of 2.5 per cent for UTI Gold ETF where the minimum investmentis Rs 20,000. Again let's assume that the price of gold on the day of allotment is Rs 1,000.In this case, the cost of one unit will be Rs 1,000 plus the entry load of 2.5 per cent. This worksout to Rs 1,025 per unit accounting for the entry load of Rs 25 (2.5 per cent of Rs 1,000).

Hence you will get only 19.5 units (Rs 20,000/Rs 1,025) of UTI Gold ETF instead of 20 unitsbecause of the 2.5 per cent entry load.

For Benchmark Gold BeES, however, the entry load was only 1.5 per cent that is Rs 15 per Rs1,000. This translates into Rs 1,015 per unit.Rs 20,000 invested in this scheme during the offer then would have fetched you only 19.7 (Rs20,000/Rs 1,015) units.


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Here's a look at seven of the largest gold ETFs on the market today, along with their objectivesand methodologies

1) iShares COMEX Gold Trust (IAU): This trust seeks to match the day-to-day movement ofthe price of gold bullion. IAU has more than $2.0 billion in assets, consisting primarily of

gold bullion, and an expense ratio of 0.40%.2) E-TRACS UBS Bloomberg CMCI Gold Total Return ETN (UBG): This exchange-tradednote is a subordinated debt instrument designed to track the performance of the BloombergCMCI Gold Total Return Index, which measures the collateralized return from a basket ofgold futures. These commodity futures are diversified across five constant maturities fromthree months to three years, so this ETN may not always track the spot price of bullionexactly.

3) PowerShares Global Gold and Precious Metals ETF (PSAU): This fund is designed totrack the performance of the NASDAQ OMX Gold and Precious Metals Index, whichmeasures the performance of globally-traded securities of companies involved in gold andother precious-metals mining-related ac... Since the underlying assets are actually common

stocks, this ETF is really not a direct investment in gold, and its performance may varysignificantly from the spot price of bullion.4) ProShares Ultra Gold (UGL): UGL is a leveraged ETF that seeks a return equal to 200% of

the daily return of gold buillion, as measured by the U.S. dollar fixing price for delivery inLondon. As with all leveraged ETFs, compounding of daily returns will likely vary(sometimes significantly) from the target return over that period. As such, UGL is generallyappropriate for intraday trading only.

5) SPDR Gold Trust (GLD): Similar to IAU, this ETF attempts to reflect the performance ofthe price of gold bullion. GLD also holds gold bullion directly, so its price moves closely inline with the price of the actual commodity. Also similar to IAU, GLD maintains an expenseratio of 0.40%.

6) ELEMENTS MLCX Gold Total Return ETN (GOE): This exchange-traded note is in theprocess of being removed from the NYSE Arca Exchange. In its press release, ELEMENTSnotes that GOE, along with two other ETNs, were delisted due to insufficient tradingvolumes.

7) PowerShares DB Gold Fund (DGL): DGL is based on the Deutsche Bank LiquidCommodity Index - Optimum Yield Gold Excess Return. This index is a rules-based indexcomposed of futures contracts on gold.


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IV. GOLD FUNDSA mutual fund or exchange-traded fund (ETF) that invests primarily in gold-producing

companies or gold bullion. The price of shares within a gold fund should correlate very closely

to the spot price of gold itself, assuming the fund holds the majority of its assets in bullion or in

the stocks and bonds of gold miners and manufacturers.

While many mutual funds focus on manufacturing and production stocks within precious metals,a few new ETF entries have focused primarily on ownership of gold bullion. Gold funds are avaluable tool for investors, including speculators (gold can be a very volatile commodity)and those wishing to hedge against geopolitical instability. Gold is also valuable as bet against afalling currency. By investing in a gold fund, a retail or institutional investor can gain exposureto this asset without the hassle of taking delivery of physical gold assets, which is often requiredin the commodities.

Gold Exchange Traded Fund (ETFs) depend on the performance of Gold, but Gold Fund dontincrease or decrease from price of Gold. Their performance depends on the earnings of MiningCompanies and on the broader sentiment towards equity market. . In that sense a rise in goldprice may translate into gain for gold stocks with a time lag.

A.Factors to consider while Investingy Factor 1: Cost of Extraction

First and foremost, you need to compare mining companies' cost of extraction, meaning how

much money it takes to get an ounce of gold out of the ground. The lower the costs, the

higher the profits for the most part.

For example, the company that can extract gold at a cost of only $300 an ounce will have a

distinct cost advantage over the miner with extraction costs at $420 an ounce.

y Factor 2: Leverage

Secondly, you need to look at leverage, which has a direct effect on earnings multiples -

which affects how much money investors should expect to make in the future.

Any increase in gold prices affects the percentage profits of a mining company, but for

higher-cost companies, profits jump by a higher percentage than lower-cost companies.

For example, if gold climbs from $800 an ounce to $850 an ounce, lower-cost miners see

their profits rise from $500 to $550, or 10%. Higher-cost companies see their profits rise


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from $380 to $430, or 13.2%. That means that higher-cost companies should see a bigger rise

(32% bigger) in their share prices compared to the lower-cost companies' shares.

y Factor 3: Hedging

And lastly, look at a mining company's hedging policies. Hedging means a mining companyenters a contract to sell their gold or silver to someone for a fixed price, no matter what the

actual price might be at the time of the sale. Companies that hedge most of their production

are severely limiting their leverage, which, as we've said, can have a strong effect on earnings

multiples and share prices.

So, for example, let's assume a company with an extracting cost of $400 an ounce hedges

production at $800 an ounce, meaning they've entered a contract to sell their gold for $800 an

ounce. If gold continues to rally past $800 to $900, they've eliminated a massive chunk of

their profit potential, capping their leverage at $800 and profit at $400 an ounce.

An unleveraged company with the same extracting costs can ride that profit all the way up to$500 an ounce - or 25% more than its competitor.

So for investors looking to invest in gold and silver mining companies, they should take these

three factors into consideration.

No demat account is required for making investments in gold funds.

B.Names of some Gold Funds

y UTI Master Gold Fund

y IDFC World Gold Fund

y AIG World Gold Fund

y DSP Merrill Lynch World Gold Fund

y DSPBR World Gold Fund


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V. GOLD ETF BETTER THAN PHYSICAL GOLDIndia is the biggest gold market in the world. Last year, gold worth Rs 70,000 crore (Rs 700

billion) was traded in India. However, the demand is now shifting from jewellery towards

investment. Five years ago, demand for jewellery was 90% and demand for gold as an

investment only 10% of the total trade. Investment in gold has picked up and has reached 30%.

Gold worth Rs 20,000 crore (Rs 200 billion) per annum is being sold in the form of coins,

biscuits or bars, while a lot of people are buying from banks. Banks have started selling gold

in the past five years. Leading jewelers also sell pure gold. There is an investment demand of

Rs 20,000 crore for gold. But when you go to a jeweller or a bank to buy gold coins, you

have to pay 5-7% premium.

When you go to a jeweller to sell the gold or to get it converted into jewellery, about 5-10%

is cut from the total cost. Therefore, you never get the benefit of appreciation of gold. Now if

you want to diversify your portfolio and want to invest in gold you can check out returnfigures. Gold has given 16% returns in the past five years. So, why not invest in electronic

form of gold.

A.BENEFITS OF INVESTING IN GOLD ETFBenefit 1:

If you want to accumulate Gold for your daughters marriage, Gold ETF is the right choice.

With gold ETFs in the market, one needs to wonder whether purchasing gold bars or

jewellery is really the best way? By the time the daughter reaches her marriageable age,chances are that the designs of the jewellery accumulated would be outdated. Additional

expenses would have to be incurred as making charges if the old jewellery is moulded into

new ones.

Benefit 2:

Your savings as low as the amount equivalent to one gram of Gold could be invested in a

disciplined way each month in Gold ETF. In contrast , buying physical gold each month for a

small amount may not be possible.

Benefit 3:

On several counts, purity of gold cannot be confirmed. The buyer has to keep faith in the

local jeweller and would know of the purity only when he tries to sell the gold in times of

need. Yes, there are banks that offer certified gold, but remember that banks charge a

premium of nearly 15% for the coins they sell. In contrast in Gold ETF you will be paid the

market value for the pure Gold accumulated in your account on the date of redemption


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Benefit 4:

In the Liquidity aspect, both physical Gold and Gold ETF could be treated at par as both can

be sold in the market at any time. However, selling physical gold in the market may involve

burden of wastage charges of around 10 % to 15% arises on account of re-moulding to be

borne by the seller. Gold ETF has got not no such impediments. One can sell Gold ETFeither partly or in full at any time after 3 days from the date of purchase.

Benefit 5:

Safety of Physical Gold you buy is also very important. There are costs associated with

storing in terms of fees paid for a bank locker and for insuring gold. Gold ETF has no such

hassles.

The only clear and present danger after you start investing in Gold ETF is you may not be in

the good books of your wife as paper gold will never attract neighbours envy to make yourwife pride.

B.How investing in Gold ETF's scores over Physical gold like Bars orjewellery

Comparison of GOLD ETF's vs. GOLD BARS vs. Jewellery

Consider you are investing Rs 1 Lacs in Gold , there are 4 parameters to judge.

If you purchase Them

- Jewellery: Making charges of 15-20%

- Gold Bar: 10% to 20% mark up charges by banks.

- Gold ETF: 1.5-2.5% entry load

If you Sell

- Jewellery: 10% - 20% is lost due to Purity issues

- Gold Bar: Banks do not take it back , so premium paid at time of purchase is written off.

- Gold ETF: Brokerage of 1% or even less.


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Maintenance Charges

- Jewellery : Insurance charges and locker charges (if you put it in locker)

- Gold Bar : Insurance charges and locker charges (if you put it in locker)

- Gold ETF : 1.5 - 2.5 %

Tax Implications

- Jewellery : Long term capital gain of 20% , but after 3 years. 1% wealth tax

- Gold Bar: Long term capital gain of 20% , but after 3 years. 1% wealth tax

- Gold ETF: Long term Capital tax of 20% , but after 1 year. No wealth tax

Gold is taxed at 30% if held for less than 1 year in any format.

So on all these 4 scenarios, GOLD ETF's score heavily over other means of investing in

GOLD.

C.Difference between Gold ETFs and physical goldParameter Gold ETFs Physical Gold

Holding Dematerialized Form Coin, bar etc.

Transparency Very High Very Low

Pricing Will be traded at NSE/BSE, so,transparent

Not Transparent

Sale Can be done on the exchange itself Based on set ofconditions

Wealth Tax No Yes

Short TermCapital GainTax

If sold before 1 year If sold before 3 years

ImpurityRisk

Nil High


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D.Taxation Implications of Gold ETFsETFs are taxed on the same lines as of debt mutual funds. Following is the taxation slab:

Category Short TermCapital Gain

Tax

Long Term

Capital Gain

Tax

Dividend

Distribution

Tax

Security Transaction

Tax

Individual As per incometax slabs

10% or 20%with indexation

14.16% 0.125%at redemption

Corporate 30% 10% or 20%with indexation


NRI As per incometax slabs

10% or 20%with indexation



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VI. LIMITATION OF GOLD ETFGOLD ETF ARE NO GOOD!!!

Gold Etfs are no good in India due following reasons:

1. Taxes at the time of purchase are high: when u sell your gold through Etf, you only get theactual valuation prevailing on that date plus you are also charged other taxes/brokerage etc -hence there are a lot of built-in deductions and unless there is a big lot of appreciation in goldprices (i.e. which can only happen over a long period of holding), the net profit in selling the Etfgold can be virtually negligible!

2. One of the main reasons we Indians buy gold is easy liquidity during an extreme familyemergency, war-times, civil unrest etc. etc. do you really think that on such occasions, it will bepractical/possible to get your Etf converted into physical gold and trade it at a short notice? No,I do not think so; your Etf is likely to remain a mere piece of paper during such difficult times. Itis much better to hold physical gold in personal safe custody, locker etc.

3. Gold is a hedge only against inflation, it doesn't pay you any interest- hence it is not such agreat form of investment. The old maxim of keeping between 5-10% of your total wealth in goldform still holds good investment, on long term equities (60%) also holds good, real estate, debt

instrument come next. Don't forget the good amount of insurance for the family and finally butnot the least- invest in education and charity for the poor.

4. Gold Etf is not practical in rural areas/ non-metro cities.

5. Our civil society has a long way to go for maturity in order to derive the best out the gold Etfetc. There are numerous closures of market. Also there are lots of paper formalities to becompleted or if on-line, then other related issues come in. on the whole- the Gold Etf looks goodonly on paper.


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VII. PERFORMANCE OF GOLD EXCHANGE TRADED FUND IN INDIANearly two years after India launched the Gold Exchange Traded Funds (ETFs), gold collections

by the six gold funds in the country have been dismal. Indias Gold ETFs hold just over 5 tonnes

of gold whereas Indian households own about 15,000 tonnes of gold, comprising around 10 per

cent of global stocks of the yellow metal.

India is the largest consumer of gold in the world. But the performance of the six companies that

have launched Gold ETFs funds in the country has been below average. Benchmark Mutual

Fund launched the first gold ETF in India in March, 2007.

The six players in the market, namely, Benchmark, Kotak, Quantum, Reliance and the State

Bank of India.

But gold ETFs have outperformed every other asset class rising 22.8% for the year ending March

30 2009, gold funds that invest in gold mining companies and mutual funds (MFs), which have

an exposure in such companies, too, have joined the bull run.

Benchmark holds 2.07 tonnes of gold, where as UTI has 1.36 tonnes, Reliance Capital 1.49,

Kotak 0.36 and Quantum .05. Though Gold collections under the ETFs are growing year on year,

they remain negligible when compared to Indias imports of around 700 tonnes annually.

India's gold collection under exchange-traded funds (ETF) rose 24.6 percent to 5.931 tonnes

from 4.761 tonnes a year ago, data from the funds showed. Collections in rupee-terms rose by

44.6 percent. Investors have grown up by a 100 percent year-on-year.

The main problem for rapid growth of gold ETFs in India is said to the lack of awareness andcomplicated investment norms. Moreover, people still find charm in holding physical gold. The f

six gold ETF funds put together hold just above five tonnes of gold.

According to the World Gold Council, Indian households own about 15,000 tonnes of gold,

comprising around 10 per cent of global stocks. As opposed to the Indian scenario of falling

ETFs, ETF holdings abroad continue to rise, with investors adding to the pool with 32 tonnes of

Gold in December.

ETFs track the performance of a particular index; their base price is basically equivalent to the

value of the index. ETFs are not limited to gold. There are ETFs of almost all metals and most-

traded agro-commodities. Eg: Gold, silver, copper, wheat, corn, cotton etc. At present, in India

gold is the only commodity ETF.


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Historical Performance of Gold ETF in India and also see how the Fund Manager of respective

Gold ETF have managed to give returns. The Collected Data are from the Article published in

Times of India based on research by Value Research and the figures mentioned here are sourced

from there.

Historical Performance of Gold ETF in India:

SOURCE: Mutualfundsofindia.com

For example, a fund that has a consistent four-year return of around 4%, for example, wouldhave a mean, or average, of 4%. The standard deviation for this fund would then be zero becausethe fund's return in any given year does not differ from its four-year mean of 3%. On the otherhand, a fund that in each of the last four years returned -5%, 17%, 2% and 30% will have a meanreturn of 11%. The fund will also exhibit a high standard deviation because each year the returnof the fund differs from the mean return. This fund is hence riskier because it fluctuates widely

between negative and positive returns within a short period.But ETFs may not be winners for all times to come. The reason being ETFs have a two-yearhistory and hence it would be premature to rate these funds above than pure gold equity funds onthe standard deviation factor.


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PERFORMANCE OF GOLD FUNDS IN INDIA

The outlook on gold has been largely positive. It has done well against other asset classes over

the past 6-7 years. Gold Funds has become quite popular among investors these days. Gold

Funds invest in equities of gold mining companies across the globe, however Gold Funds have

been affected by the stock market meltdown.

World Gold Funds have also put up a decent show in the last six months. These are however

feeder funds and thus not actively managed in India. Both AIG and DSP Blackrock, the only two

fund houses currently to have World Gold Funds, manage these funds through their

internationally based parent gold fund. AIG world gold fund and DSP Black Rock (DSPBR)

World Gold Fund have outperformed gold ETFs in the last three months, clocking 23.7%

and 15.05% returns respectively, data with Value Research, a firm that tracks MFs, shows.

While the equity meltdown did impact World Gold Funds, especially in the first half of the last

fiscal, the sensational rise in the gold prices did benefit the stocks of gold mining companieswhere World Gold Funds usually invest. Both the World Gold Funds have thus reported morethan 50% rise in returns over the last six months, which is even higher than the rise in goldprices.

Birla Sun Life global precious metals fund, another recent entrant to the space, which invests instocks of global gold and mining companies such as Goldcorp and Newmont Mining hasdelivered 9.13% returns in three months. AIG and DSPBR invest about 95% of their corpus inworld gold funds. Shares of AngloGold Ashanti, a leading gold mining company, have moved up31.3% on the New York Stock Exchange in January-March while that of Newmont Mining Corp,the worlds second largest gold miner, inched up 11.3% during the period. Goldcorp posted a

6.2% return in the three month period.

Apart from prices, gold funds are impacted by many factors, including industry and company

related issues and the performance of equity markets. Last year, a few leading gold mining

companies were adversely impacted by high raw material, energy and labour costs. Companies

in the sector are also susceptible to political risks and depletion of gold reserves.


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GOLD ETFs OUTPERFORMS GOLD MUTUAL FUNDS

The last one-year has brought in a clear-cut difference between gold exchange-traded funds

(ETFs) and Gold Funds for investors who have been uncertain as to which of these funds is a

better bet. In the last one-year, ETFs have done extremely well with 14% returns over last one

year, but the two fund of funds that invest in gold mining companies have lost 5.18% and13.49% respectively.

An important factor that has worked for ETFs and has made these funds emerge as clear winners

is the standard deviation factor. ETFs standard deviation stands at 4.5, whereas DSP Blackrock

Gold Fund stands at 8.31.

SOURCE: ICRA ONLINE


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VIII. SEVEN Gold Investment Advices:1. A Gold Coins Investment Can Offer More Than Just Gold Value

A gold coins investment offers you more than just the value of the gold. Many of these coins can offer

historic value as well, and this can increase the selling price significantly. This is not the best way to getthe most value for your investment capital, because the historic value is added into the price of old gold

coins so they may cost more, but these coins offer more than just monetary value for your capital, and

may increase in selling price more as the years go by.

2. Not All Forms Of Gold Investing Are The Same

There are many different ways to invest in gold. You can choose gold mining stocks, gold coins,gold bullion, gold accounts, gold futures, and other methods of investing in gold. Gold bullionprices make this a popular investment choice, and coins and bars are widely chosen as well.Some methods allow you to take possession of the gold you invest in, while others like gold

futures and gold mining stocks do not actually give you the gold you invest in.

3. Buy The Cheapest Form Of Gold For The Best Investment

Gold bullion prices will vary widely, and so will many other forms of gold you can invest in.Examine all the gold investment options and choose the cheapest forms f gold to put your capitalin. The three most popular and cheapest options are gold bars, Krugerrands, and sovereigns, inthat order. Because of the size and weight of gold bars, the coins are commonly chosen insteaddue to the convenience factor, plus the fact that bars may be harder to sell to private investorsbecause of the larger amount.

4. Buy When The Price Is Low

It is a common reaction for many people to buy gold when gold bullion prices have been goingup and are high, but do not buy at this point. Instead wait until the gold prices are lower tanaverage. If gold prices are already high, you have missed your opportunity to get in on theground floor and maximize your return on investment.

5. Do Not Compare Gold Prices, Instead Use Gold Percentage Premiums

If you are considering a gold coins investment or other type of gold investment that includestaking possession of the gold, compare the percentages of the gold instead of the gold bullion

prices. Look at the percentage premium, which is simply the percentage that is over the price ofgold for the option. Looking at the percentage of each gold investment option can help youcompare all forms of gold investing easier and with more accurate results.

6. Buying In Bulk May Not Always Be Better

When you compare your gold investment options, such as a gold coins investment, gold miningstocks, and others, price is not the only consideration. You must also consider the resale


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convenience and risks involved as well. You will get the best price by buying large gold bars butthese are heavy, inconvenient to transport and store, and may be hard to sell unless you findsomeone willing to buy a large amount of gold. Gold coins may cost a little more but are alsomuch easier to transport, store, and sell.

7. Choose The Best Gold Investment Methods For Your Needs And Circumstances

There is no single gold investment strategy that will fit every investor. All of the investmentoptions have different advantages and drawbacks, so there is no one size fits all investment planwhen it comes to gold. Instead you must evaluate your circumstances and choose the best optionsfor your unique investing situation and needs.


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IX. FUTURE PROSPECTSGold Fund In India

Mutual fund rush to launch Gold fund in India

After launching gold exchange traded funds (ETFs), mutual funds companies and big corporate

houses in India are setting their eyes on launching gold funds in the country. Expectations of

increased demand for gold, huge investor interest and an uncertain outlook for other asset classes

are prompting asset management companies to launch gold funds.

Sighting money-making prospects, several fund houses have approached capital market regulator

Sebi for approvals to launch gold-based schemes. Sundaram BNP Paribas, UTI MF, Reliance

MF, IDFC and Religare MF have sought approvals to start gold funds, many of which would

also act (apart from investing in securities of mining and jewellery companies) as feeder funds to

existing exchange-traded funds. The move is to enable more retail participation as investors arenot allowed to invest in ETFs without a demat account.

Gold funds have become the biggest hit of the year with investors as they are giving

unimaginable returns during the past few months and in India also more people are now banking

on gold funds. Since the world crashed into a recession, gold has been doing extremely well as a

safe haven for investors. This has pushed the prices of gold above $1,000 per ounce.

Considering the fact that gold will remain as a safe haven for investors for quite some time, the

outlook for the yellow metal and gold mining companies remains bullish for the foreseeable

future.

The DSPBR World Gold Fund invests over 98 per cent of its portfolio in Blackrock Gold Fund,

while AIG World Gold Fund invests nearly 86 per cent of its portfolio in AIG PB Equity Gold

fund. Both these funds also invest in platinum, silver and diamond mining companies though

limiting them to 9-15 per cent of their portfolios.

The best thing happened to gold mining companies is that the cost of production has come down

due to recession while the price of the yellow metal skyrocketed.

With the costs now stabilising, the realisations may improve for these companies, which could

have positive impact on such stocks.

While UTI has launched a wealth builder fund that invests in equity, debt and gold ETFs,

Sundaram BNP Paribas is also planning to launch a scheme on similar lines whose offer

document has been filed with Sebi. Investors can now thus look forward to many more

options to invest in gold.


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X. CONCLUSIONGold has become a speculative investment tool. With Exchange Traded Fund (ETFs), it is now

widely traded and has become risky and volatile, Though gold has given good returns in the

short run, investors should have a combination of gold and equity in their portfolio,. This

would help minimise the impact of volatility.

As the political scenario looks rather promising in India, many are upbeat about Indian equities.

However, many more factors will decide the future of Indian equities. Some such as FII interest

and the future of the US economy may not remain conducive to Indian equities. Also, currency

printing across the globe may lead to bubble-like situations in shallow, emerging markets like

India, where asset prices are easy to manipulate. Given the uncertainty in US it makes sense to

park some money in gold.

Exposure to gold in a systematic manner is made easier if one opts for gold ETFs. Investing in

gold makes sense not only from the point of view of safety of portfolio but also from the point ofview of returns.

The fortunes of gold ETFs are directly related to the prices of the yellow metal, which is on a

bull run due to the uncertainty in the global economy and sustained weakness in equity markets.

Now that a new era for commodities seems to have begunone likely to be characterized bygreater price stabilityany future gains by gold will have to come on its merits as a perceivedsafe-haven store of wealth, a hedge against inflation, and as a desirable component of jewelery.

However, investors should be realistic about expectations on gold ETF

returns, "Most of the gains are because of the volatility in the (US) dollar rate.


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Bibliography

www.moneycontrol.com

www.moneyoutlookindia.com

www.commodityonline.com

www.dictionaryreference.com

www.galatime.com

[email protected]

www.economictimes.com

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Gold Fund Project Final College

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