Investing Trends

Gold exchange traded finances are shining at a clip stock marketplaces are in turmoil, states Anirudh Laskar

In a volatile market, when your pillory are struggling and common monetary fund tax returns are headed south, gold exchange traded finances (ETFs) can be a safe bet. Gold ETFs have got got fetched eye-popping returns for investors over the past three calendar months when all the other investing avenues have gone haywire amid unsure planetary markets.

Gold ETFs, which have got the yellowish metallic element as the implicit in plus for the units, are listed and traded on bourses. Every gold ETF unit of measurement of measurement stands for a definite measure of 24 carat pure gold and the terms of the unit moves in bicycle-built-for-two with the terms of gold traded in any large gold merchandiser constitution or metallic element exchange.

The implicit in plus is held by a common monetary fund house issuing such as units of measurement either in physical word form or through gold receipt, which gives the right of ownership. Authorised participants can deliver the gold ETF units of measurement and demand equivalent value of existent gold at any time.

The recent rush in international gold terms have led to gold ETFs giving up 30 per cent tax tax returns over a three-month period and 40 per cent returns over a six-month period.

Five funds

There are five gold ETFs in the industry — Gold Benchmark ETF, UTI Gold ETF, Kotak Gold ETF, Reliance Gold ETF and the recent Measure Gold ETF. All these ETFs, except Quantum, have got given tax returns in the scope of 26-30 per cent over the past three months. Benchmark was the first plus direction company to present gold ETFs in Republic Of India last year, followed by UTI, Reliance and Kotak.

"Our plus and investor alkali have got grown 30-40 per cent over the last 1 year. Over the past couple of months, the figure of clients for gold ETFs have got got increased about 10 per cent, and we now have about 23,000 investors. On a long-term basis, 5-10 per cent of every investor's portfolio should consist gold ETF," said Rajan Mehta, executive manager director of Benchmark AMC.

Interestingly, the tramp in gold terms have positioned DSP Merrill Lynch World Gold Fund as the lone equity monetary fund in Republic Of India with positive tax returns in the past three months. Investors and analysts had expressed uncertainty about this monetary fund when it was launched in August 2007, since it put over 90 per cent of its assets in companies engaged in gold mining.

The feeder fund, which put in Merrill Lynch International Investing Funds — World Gold Fund, have wooed investors with about 63 per cent tax returns in just six months.

The fund's plus under direction have more than than doubled to over Rs 1,487 crore in December 2007 from Rs 692 crore in September 2007.

Analysts wary

Analysts, however, are discerning about the impulse gold have gained over the past few months.

"The tax returns from gold ETFs depend on the terms cycles. These finances may not be able to prolong their growing if gold terms cool down. Investors can maintain 5-10 per cent of their assets in these ETFs," Dhirendra Kumar, chief executive officer of Value Research Online, said.

Although the sum plus under direction of gold ETFs stood at Rs 493 crore at the end of February, the recent success of gold ETFs and DSPML World Gold Fund could transform gold-linked funds into attractive investing vehicles.

Cost factor

Investing in gold ETFs be givens to be costlier during the new monetary fund offering (NFO) period.

For instance, the Gold Benchmark Exchange Traded Scheme, which was launched in February 2007, charged an entry loading of 1.5 per cent and UTI Gold Exchange Traded Fund, launched in March 2007, charged 2.5 per cent. Investors can look for chances in these finances when they are listed on Bourses to avoid the entry loading in the NFO period.

Although investors are not required to pay an entry loading while investment in listed gold ETFs, they have got to pay a brokerage firm fee. Brokerage complaints are similar to what is charged while investment in pillory — around 0.5 per cent of the dealing value. However, the complaint changes from one agent to another.

A pre-requisite for investment in gold ETF is to have got a demat and trading business relationship with a broker. To keep these accounts, investors have got to pay yearly charges. There is also the disbursal ratio, a recurring expense, attached with the fund. Both Gold bees and UTI Gold ETF have got an yearly disbursal ratio of 1 per cent.

The yearly disbursals such as as storage, insurance, and direction fees are charged by merchandising a little amount of gold represented by a certificate. The amount of gold in each certification will gradually worsen over time. Investors demand to see these complaints before investing.