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A Study on the prospects of Gold Equity Traded Fund in India

Mallika Mathew Faculty Department of Management Studies Toc H Institute of Science & Technology

Introduction

India is the worlds largest gold consumer market. Gold is seen a sign of security as well as sign of prosperity. Gold is considered as form of money and is considered as one of the foundation assets for an Indian household and a means to accumulate wealth. In 2009, India accounted for 15% of the gold global market. Over the past 10 years the value of gold demand in India has increased at an average of 13% per year outpacing the countrys real GDP, inflation and population by 6%, 8% and 12 % respectively.

Gold Jewellery accounted for 75 % of the total Indian gold demand, the remainder being investment (23%) and decorative and industrial (2%). During first half of 2010,Indian net retail investment in gold increased by 264% to 93 tonnes.

Objectives of the study


To study the new product Gold ETF To study the competitive advantage of Gold ETF with respect to Physical Gold

To study in detail about the Gold ETF launched in India.


To study the returns from Gold ETF with that of SENSEX for the period understudy. To study the returns, investors may gain from Gold ETF considering the period of the study of three years.

Structure of ETF:

Comparison of Gold ETF with Physical Gold


Sl No 1 2 Parameter How Gold held Pricing is Jeweller Physical (Bars / Coins) Differs from one to another. Neither transparent nor Standard. Likely to be more Charges are incurred High Locker / Safe Investor is responsible Conditional and uneconomical Less convenient, as Gold needs to be moved physically Bank Physical (Bars / Coins) Differs from bank to bank. Not Standard. Likely to be more Charges incurred Nil Locker / Safe are Gold ETF Dematerialized (Electronic Form) Linked to International Gold Prices and very transparent. Likely to be less No Charges are incurred Nil Demat Account Fund House takes the responsibility At Secondary Market Prices More convenient, as held in electronic form under the demat account Very Low No, Not possible No After 1 year

3 4 5 6 7 8 9

Buying Premium above gold price Making Charges Impurity Risk Storage Requirement Security of Asset Resale Convenience in Buying / Selling

Investor is responsible Banks do not buy back Less convenient, as Gold needs to be moved physically Can t Sell Back Yes, possible Yes Only after 3 years

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Bid Ask Spread Risk of Theft Wealth Tax Long Term Capital Gains Tax

Very High Yes, possible Yes Only after 3 years

List of existing Gold ETFs in India


Name Expense Pricing Per Unit Ratio Benchmark Mutual Fund 1% Approximately 1 gram Gold Benchmark Exchange of gold Traded Scheme UTI Mutual Fund UTI 2.5% Approximately 1 gram Gold Exchange Traded Fund of gold Kotak Mutual Fund Gold 2.5% Approximately 1 gram Exchange Traded Fund of gold Reliance Mutual Fund 2.5% Approximately 1 gram Gold Exchange Traded Fund of gold Quantum Gold Fund 1.25% Approximately half a Exchange Traded Fund gram of gold SBI Mutual Fund SBI Gold 2.50% Approximately 1 gram ETF of gold HDFC Mutual Fund 2.50% Approximately 1 gram HGETF of gold ICICI Prudential Mutual 2.50% Approximately 1 gram Fund - ICICI Prudential Gold of gold ETF Axis Mutual Fund - Axis Approximately 1 gram Gold ETF of gold Inception Date 08 March 2007 3rd Jan 2007 21st June 2007 1st November 2007 27th February 2008 30th March 2009 23rd July,2010 29th July,2010 3rd November,2010