Gold is one of the hottest discussions these days and I have been getting lot of queries about investing in gold as a whole as well as Gold ETF investment. Yesterday I got a very interesting question about Gold ETF that leads me to this post. The question was comparing three major (read most advertised on business channels) Gold ETF’s and why each one is priced differently.
- Reliance Gold ETF – Rs 2050*
- Kotak Gold ETF – Rs 2100*
- SBI Gold ETF – Rs 2150*
* The price is approximately for 20th April 2010.
The question was – which one he should be looking to buy and why is the price difference when each one of them is gold ETF which means should reflect the price of gold.
First there are more than three gold ETF’s in India. You can see all the Gold ETF’s on NSE site here but let me list few of the ones here.
Now if I plan to buy into gold ETF I would be buying into the best ETF because there is no point in buying the second best ETF but before I go into the details let me tell you that I am not a fan of ETF investment as a whole (See why here) but I did my first ETF investment yesterday just to test the things out before making this post.
A Myth about Gold ETFs
A myth among investors is – Gold ETF is Gold but that it is not true. Gold ETF is by no means is Gold but is an equivalent of gold.
An analogy can be an engineers’ degree and an engineers’ equivalent degree or diploma. A diploma holder is as good as an engineer but is not an engineer. Phew being a tech guy I could manage to get the engineering into finance as well.
Jokes’ apart coming back to the point of ETF – It is just a reflective price of GOLD and ETF may not hold the exact amount of gold but majority (90 %+) of the asset is gold. So a Gold-ETF means it has Gold but also has some cash and debt along with gold.
Why the difference in ETF Price?
The difference in ETF price among different fund house is mainly because of the expense ratio of the fund house and annual maintenance charge for maintaining the fund/gold.
Best Gold ETF
Now let us compare the ETF’s to see which one is the best Gold ETF for investing. I am using couple of criteria to judge the ETF”s as best.
1. Lower expense ratio
Comparing the expense ratio of major Gold ETF’s I found that Gold Bees and SBI Gold have the minimum expense ratio of 1% and 1.3% respectively and other ETF’s have an expense ratio of in range of 1.5% to 2.5%.
2. Actively Traded
If you opt for actively traded ETF you can liquidate your investment easily. Gold BeES is by far the most actively traded Gold ETF with 61493 quantities traded yesterday and the second best was KOTAK Gold with 6982 traded quantity yesterday. Average traded quantity in Gold BeES is almost 10 times its second best Gold ETF.
Final Thoughts
Gold BeES is the best Gold ETF of India but remember investment in gold is always better than gold ETF.
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{ 63 comments… read them below or add one }
Hi Shabbir,
Pl. elaborate, the difference between Gold ETF & Gold FOF. Which one is better to invest & how we can invest in Gold FOF ?
Gold ETF is traded in market where as Gold Funds of Funds is a Mutual Fund and so investing in each is same as stock and mutual funds respectively.
Can the gold ETF prices suddenly fall to any level like a share ? e.g. HDIL share came down to 100 from 680 . I mean if the etf value varies as per demand or it only depends on gold rate ? Thanks in advance .
Yes if Gold price falls
Does it mean gold price is the only mover for ETF price movement ? Thanks .
Hi Shabbir, I am looking at investing a fixed sum into either fixed deposit, liquid fund, gold ETF or physical gold. Essentially, the criteria is moderate returns with low risk and moderate liquidity.
What would be your advice? If it is Liquid fund or Gold ETF which specific one would you suggest?
Regards,
Jayant
Jayant, depending on how you define the moderate liquidity and what is your investment timeframe things may vary but I will not recommend you Gold ETF as of now because Gold is showing bearish signs.
http://www.investment-mantra.in/2012/all-about-gold-etf-and-gold-fund-of-funds-fof-at-investment-mantra-in/
My daughter is 4 years old and I am 41 years old. I want to invest 4000 per month for gold so that by the time she is 20-22 years old I have enough gold for her marriage ornaments.Pl. advice that I should go for gold etf or physical gold.
My advice would be Physical gold.
Shabbir,
Why would you advice in buying physical gold than gold ETF? Any particular reason behind this? Or is this because it is for long term?
Thanks
Only for long term and no other reason Arun.
Alright. If it is physical gold better option is to buy gold coins or gold ornaments?
Thanks
Very informative Shabbir!!.
Still I have a few Qeries:
1. I need to buy Gold ETF from my Demat A/c. How do i go about.? Just the same way I buy Shares?
2. Is there no SIP for a Gold Etf? Meaning every month at the same time, i need to manually go to my Demat A/c and keep buying the ETF?
3. I am interested in buying GOLDBEES.
The Unit value i can see from my Demat A/c in NSE is of 2800/- as of today.
So does it mean I need to invest 2800 only?
Or I can invest 1000/- as per My plan?
Thanks
Kavita
Kavita,
Thanks for the feedback and here are my answer to your questions.
1. Yes. Same as shares
2. If your broker allows SIP in shares, you should have option to SIP in ETF as well. Ask your broker about it.
3. You need to buy at least 1 unit of GOLDBEES and so minimum is 2800 and so you cannot invest only 1000.
Hi Shabbir,
Thanks for your clearly explained article and reverts. One quick query – Since the SIP in Gole ETF is still not in existence, do you think SIP in Glod FoF would be appropriate? I know Gold FoF has higher expense and double tracking error possibility, but sill wanted to know if Gold FoF should be considered or ruled out as compared to Gold ETF?
Regards,
Anurag
Anurag, Gold Funds and Gold funds of funds are different than ETF and so they should be dealt differently. If you want to go for SIP and only SIP, the best option is Gold funds and Godl fof’s
Excellent Post Shabbir..I am completely new to market & want to invest in some Good ETF as of today date..Is the rating of Best ETF (as per your first post on 2010) on todays date still same or differs..& without DMAT account won’t it be possible to buy one..
Thnx in advance..
Br/
Nishit
Nishit, thanks for your feedback and yes my analysis is valid today as well.
Quantum gold etf has the lowest expense ration, and is the only gold etf presently whose value is equal to approx half gram of gold
Dear Mr Shabbir,
Very nice post but still i can not understand why the facevalue of the EFT are Rs 100 even though EFT equivalient to 1 gram of gold
Not sure Raju I understand your question but yes Facevalue in India is lot misleading because all over the world it is mostly unity.
Hi Shabbir,
Please let me know how I can invest 1000 Per month in particular gold ETF (my choice is G-BEE)?
I have demat account.
Thanks in advance.
SIP in an ETF will be provided by your broker and so ask them for particulars how you can get that executed
Sir
Pls throw some light one unt. of ETF reflect how much gold(weight). If they can sit on cash ? if price to high by booking profte time to time.
All those information is available on the official ETF’s website as well as on the exchange site
Hi,
I saw the price list for Gold ETF, I just want to know, when I buy 1 unit of gold in Gold ETF, am I buying the gold in demat form or I am buying the shares of the company who is dealing into Gold ETF, as the price always differ from 1 ETF to other ETF.
Is Gold ETF the good way of investing money as per the current scenario, where the rate of Gold are rising high and high, today’s gold rate is Rs. 26,745.00 for 10gms, the gold price are rising high so is it the good way to invest in ETF form or physical form.
Thanks.
You are actually not buying the shares but the nav of the listed entity.
Also depending on your investment objective you need to decide what is right for you. ETF or Physical form.
Need your valuable comments on Quantam Gold ETF and also is it right time for investment in Gold
Mayuresh, See my latest article on where I will be investing in future. It does not include Gold for me. Rest depends on your investment objective as well
Hi Shabbir,
Sorry to bother you again..Do you have any facebook page..that we can follow to get some useful tips from you.
Thanks.
Yes. See https://www.facebook.com/chartpatterns
Hi shabbir,
I want to know whether investing in gold ETF’s has tax exemption and what is the locking period?
Taxation for investing in ETF’s is same as equity.
Hi Shabbir,
Very good post on ETFs…I am new to market and recently got opened a demat account. I want to trade in ETFs but have few queries:
1.)Why NAV of all gold ETFs differ?
2.)How to chose best gold ETF?
Thanks in advance !
Ankit, I have answered both of your questions. NAV is based on total asset of the fund divided by the total number of units sold and so it can be different but the performance of the NAV will be close to the original asset.
The way to choose the best gold ETF for me is explained in the post.
Thanks a lot..Shabbir.
One more that pops up in my mind is that When I give purchase order for a particular G-ETF thru my De-mat account, is the unit purchased at real time basis(same time) or it takes some time?
Pls reply ….Thanks.
Almost real time but it depends on the limit price you specify and available seller for the same limit price.
I have invested in reliancegold etf@ 2284 and goldbees@ 2645. Can I get a good return in the next 5-7 years?
Depends on how well the price of gold move in the next 5-7 years.
hi shabbir
its a wonderful post…but brother is it possible for u to brief a lill more abt how one can buy that gold etf and wen is the best time to buy gold etf…plz respond.thanks
Seemit, you can buy ETF’s like any other shares in NSE but regarding the right time to buy any stock cannot be a general rule and so explaining that I have a complete ebook on it. Check out http://shabbirbook.com/
I WANT TO INVEST IN GOLD ETF . TELL ME THE BEST ETF FUND TODAY.
Devender, the article for choosing the best ETF still holds true.
“investment in gold is always better than gold ETF” is not true from an investment perspective. I guess readers should consult a financial expert and not an internet marketing expert for advice.
To elaborate, physical buying/selling involves a higher commission (5-15%) as against 1.5%-2.5% for ETFs so your wealth erodes in the churning process faster than ETFs. Also, its not at all safe for retail investors to keep physical gold in bulk quantity at home.
Always.
If you are investing for longer terms I think I am fine paying few extra bucks for more security. It depends on person to person but yes storing very huge chunk of physical gold can be a problem.
Sir,
Nice article.
Please guide me whether i am right in thinking that the ETF with unit value closer to actual cost of 1 gram gold is the best ETF to invest.
Thanks
No Anil, the best is the one that has more actively traded because everyone will perform the same and so there is no reason to go with the one that is more close to Gold pricing.
Thanks for the information it’s very useful
The pleasure is all mine Sanskriti.
You described very clearly. In this article, you explained about reliance ETFs, kotac ETFs but I want more information about ETFs. Keep on posting. Thanks for sharing this useful information.
Hi Shabbir,
Really nice post. But in u r post u seems to be focusing more on actual gold than ETFs. It will be worth mentioning the problems in maintaining actual gold also like how to manage the physical gold, will the gold be of right quality etc.
I think in u r next post u can write about advantages and disadvantages of actual gold as well as ETFs.
There are many investors who are in delima whether to go for real gold or ETFs.
Cheers,
Ravi
Yes Ravi, I am in process of doing the same.
Ravi, Check out http://shabbir.in/gold-or-gold-etf/ and let me know if you have more queries.
sir among the above which one is more fluctuating ETF and please guide me about my thinking of investing in more fluctuating ETF.
If you can invest on the right side of the fluctuation, you are fine investing in it.
Excellent post. Clearly explained.
Thanks for the feedback.
Dear Shabbir:
I have gone thro’ your email and I like to thank you for the same.
You are openly comments on great things like Savings, Equity etc. and
I really appreciate your honesty.
Pl. note that I am already investing Rs.1000/month in SIP in SBI Gold ETF.
Is it OK or should I invest in physical gold.? If it is OK, how long should I invest
in SBI Gold ETF.
Regards.
S. Sridharan
Sridharan, according to me this is not the right time to be investing in Gold ETF’s and you can be better off investing in some other asset class but still if you prefer Gold related products and if your time horizon is more than 3 to 5 years, I will say go for gold but anything under 3 years, go for Gold ETF.
Always coins because ornaments adds extra making charges.
Yes it is.