5 reasons why you should invest in Gold ETF

Even though gold prices are nearing seven week lows and has recorded negative 3% returns of Nifty 50 index, the yellow metal has attracted many investors with 18% returns in terms of INR, HDFC securities said in a report on 25 May.

HDFC Securities said, “Gold has given smart returns on a yearly basis in 8 years till 2012, later it fell or remained range-bound for almost 3 years. It has again started the upward move in 2016.”

Predicting gold prices to rise from $14,000 to $18,000 in the next few quarters lit a surge of interest among Institutions, Investment Banks and market veterans like World Gold Council, JP Morgan among other market experts, the report said.

Which are the Multi Asset Allocation Funds that invest in Gold:

According to HDFC Securities, “There are 12 hybrid mutual fund schemes in mutual fund industry that allocate assets into Gold, debt and/or equity. They have allocated into gold between 6-30% of their total assets (as per the latest portfolio of Apr 2016).”

These funds are: Axis Triple Advantage Fund(G), Birla SL Financial Planning FOF Conservative Plan(G), Birla SL Financial Planning FOF Prudent Plan(G), Canara Rob InDiGo Fund-Reg(G), Franklin India Multi-Asset Solution Fund(G), Invesco India MIP Plus(G), Kotak Multi Asset Allocation Fund(G), Peerless 3 in 1 Fund(G), Quantum Multi Asset Fund(G), Taurus MIP Advt-Reg(G), Union KBC Asset Allocation Fund-Mod(G), and UTI Wealth Builder Fund-II(G).

Gold ETFs are passively managed mutual fund schemes investing in standard gold bullion having 99.5% purity. They are listed on the stock exchanges for trading with an intention to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold. These are designed to provide returns that closely correspond to the returns provided by domestic price of Gold, HDFC Securities said.

How to invest in Gold ETF:

Investors can buy and sell the units of Gold ETF directly on the stock exchange through registered brokers.

Units of Gold ETF are held in the demat form just like equities.

Gold ETFs give an opportunity to investor to invest in standard gold bullion (0.995 purity) without taking physical delivery of gold nor compromising with its quality.

No entry/exit load. The total expense ratio charged by funds has been a maximum of 1% per annum.

These will not be liable to wealth tax.

A custodian is appointed by the AMC for safe keeping of the gold bought on behalf of the investors.

Here are five reasons why you should invest in Gold ETF:

1. Small denomination: Retail investors, who want exposure to gold in small amounts, can opt for Gold ETFs. It allows investors to buy one unit, which is buying 0.5 - 1 gram of gold depending on the scheme.

2. Liquidity: Gold ETFs can be bought and sold any time during the trading hours like equities at the price quoted on the exchange. This makes it a liquid investment instrument.

3. Transparent Pricing: The price of ETFs is quoted on the stock exchange and there is a bid/ask during market hours enabling you to buy/sell at market prices. Thus you do not have to pay a premium while you purchase or a sell at a discount as in the case of jewellery or even sometimes in coins and bars.

4. Safety: Gold ETFs is essentially buying gold in paper form. So the investor does not have to take the trouble of safe keeping of the gold. The custodian appointed by the AMC has the responsibility of taking care of the gold.

5. Purity: Mutual funds are governed by SEBI and SEBI regulations require the purity of underlying gold in Gold ETFs to be 99.5% fineness and above. This spares investors the trouble of finding a reliable source to buy gold.

(Source: HDFC Securities)