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ETF GOLD VS. E-GOLD
ETF GOLD V/S. E-GOLD
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Since the beginning of time, gold has had a
special place in history. It has been used to
build religious idols, settle political differences,
honor monarchs, demonstrate affection, serve
as currency and, more recently, has been used
for commercial processes. Until 1971, the U.S.dollar was backed by gold, which is still held by
central banks around the world for use in
times of emergency. It also holds promise fortraders - if they can find the trend in this often
volatile commodity.
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Ways Of Investment In Gold
Physical gold from jewelers/banks:Buying physical gold from jewelers has been the traditional way since
centuries. And within physical gold, jewelry has been the most common
form of purchase. The balance, in relatively small quantities, has been the
gold coins and bars. Recently, banks too have started selling goldcoins/bars.
Gold ETFsGold ETFs are mutual fund schemes that invest only in gold. Thus it is as good
as holding gold; except that it is held electronically. Generally 1 unit ofGold ETF is roughly equivalent to 1 gram of gold and hence its price is also
roughly equal to price of 1 gram of gold. You can buy a minimum of 1 unit
of Gold ETF.
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Ways Of Investment In Gold
(cont.)
Equity-based Gold FundsThese are mutual fund schemes that - instead of investing directly in gold -
buy the equities of companies engaged in mining, extraction, processing
and marketing of gold.
E-GoldLaunched recently by the National Spot Exchange, e-gold is also an electronic
form of holding gold - except that herein you are directly the owner of
gold whereas in Gold ETF the Asset Management Company is holding thegold. Unlike Gold ETF, e-Gold also offers the facility of physical delivery.
However, given the additional costs involved viz. delivery charges, VAT and
octroi, it may be better not to opt for physical delivery.
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E-GOLD
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E-GOLD
Looking at the Indian tradition and culture most of common man are attached
to gold in various forms i.e. gold coins, bars, jewelry, etc. You would invest
in gold to hedge against rising inflation cost or for short term to earn some
profit in rising gold prices. Now-a-days while investing in gold retail
investors take into consideration the liquidity, cost, quality and security of
this gold as an investment. But, its difficult to answer which option is best
while investing in gold among various alternatives and how secure your
investment is??
To benefit investors in gold National Spot Exchange Limited (NSEL), India has
come up with the handsome solution for the problem mentioned above
by offering E-series to invest in gold. In this, Indian retail investor can trade
in commodities especially precious metal like gold in e-form. Like equities
one can keep their gold in demat form, which not only saves on insurance
cost and locker rent but also invest in small denominations.
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Points to remember while
investment in gold as e-form
Retail investors are require to open a demat account with any of the
Depository Participant (DP) of NSEL, India. You need to have a separate
demat accounts for commodities and for equities.
Trading settlement is done on T+2 days.
You can take physical delivery of gold by surrendering the required units to
the exchange. Presently there are three delivery centers of gold in India
i.e. Mumbai, Delhi and Ahmedabad.
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Pros of investing in gold as e-form An investor can buy and sell gold in small denominations. For example:
1gm or 2gm of gold.
Transaction reflects in your demat account.
Gold rates on NSEL are based on Indian market rates.
Transparency in pricing and seamless trading is key advantages of trading
in e-product.
No holding cost.
E-gold gives better returns as compared to ETFs, since fund houses
charges some additional costs. NSEL charges 0.4% while it is 2.5% for ETFs.
Easy liquidity as you can sell it off whenever required.
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Cons of investing in gold as e-form
There is no personal feeling of holding the gold in hand as DP holds it on
our behalf.
Hacking of account sometimes an issue leading to security part.
Custody charges 60 paisa per unit per month.
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ETF
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EXCHANGE TRADED FUND
A security that tracks an index, a commodity or a basket of assets like an
index fund, but trades like a stock on an exchange. ETFs experience price
changes throughout the day as they are bought and sold
Because it trades like a stock, an ETF does not have its net asset value
(NAV) calculated every day like a mutual fund does.
By owning an ETF, you get the diversification of an index fund as well as
the ability to sell short, buy on margin and purchase as little as one share.
Another advantage is that the expense ratios for most ETFs are lower than
those of the average mutual fund. When buying and selling ETFs, you have
to pay the same commission to your broker that you'd pay on any regular
order.
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ETF-GOLD
Gold- Exchange Traded Funds (ETFs)
Each share of these specialized instruments represents a fixed amount of
gold, such as one-tenth of an ounce. These funds may be purchased orsold in any brokerage or IRA account just like stocks. This method is
therefore easier and more cost effective than owning bars or coins
directly, especially for small investors, as the minimum investment is only
the price of a single share of the ETF. The annual expense ratios of these
funds are often less than 0.5%, much less than the fees and expenses onmany other investments, including most mutual funds.
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Suitability Of ETF GOLD For
Investors
Liquidity
Transparency in pricing Tax efficiency
Affordability
Assurance of purity Convenience and safety
Conversion possible
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Problems with ETF-Gold
Taxed as a Collectible
Market Risk Fees, Fees and More Fees
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The 5 Best Performing Gold ETFs
Spider Gold Trust ETF
Proshare Ultra Gold ETF I share Gold Trust
Powershares DB Gold Fund
ETFS Physical Precious Metal Basket Shares
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ETF VS E-GOLD
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Differences between E-Gold and
ETF-Gold
Fund managers track gold prices through Net Asset Value (NAV).NAV of
Gold ETF is net of liabilities so NAV and returns of different ETFs are
different, While in NSEL e-gold investors directly tracks gold prices.
NAV of ETFs are inclusive of custodian charges while NSEL do not charge
any holding charges.
In e-gold ,investors are directly holding the gold units, while in Gold ETFs
gold is actually owned by mutual fund AMCs.
Physical delivery in small denominations is possible in e-gold, while in gold
ETFs physical delivery depends on sole discretion of ETFs. ETFs may offer
delivery for investors holding Gold of higher amount.
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Differences between E-Gold and
ETF-Gold
We can invest in gold ETF only up to 3:30 PM IST as market get closed.
while spot market is open till midnight and we can invest in e-gold series
till 11:30 PM. Suppose if gold ETF closed with NAV of 2300 (Time : 3:30
pm) and get closed at e-gold at 2330(At 11:30 pm).Then there is a
difference of Rs.30 per gram in both the prices. Gold ETF will try to cover
up this difference on opening itself . Investors will not get opportunity to
get the price in between.
In both cases , buy-sell intraday/delivery brokerages are payable which arein general in the range of 0.3 to 1%.
E-gold will be taxed like a Physical gold while Gold ETFs are taxed as Non
equity mutual fund
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CONCLUSION
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Advantage of E-Gold over ETF-Gold
The biggest advantage E-Gold has over gold ETF is that it involves no
management costs or other recurring expenses
E-gold can be converted into physical gold for quantities as small as 1gm,
while gold ETFs offer the option of physical delivery but only for a
denomination of over a kilogram
Besides, the delivery centres of the National Spot Exchange are located in
15 cities, while ETFs have only one delivery centre in Mumbai
The impact cost for e-gold is only 10-15 paisa, as opposed to Rs 4-5 ingold ETFs
The current average daily turnover of E-Gold being Rs 200-250 crore
compared with Rs 15-20 crore in case of gold ETFs
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Thank You!