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.
Gold BeES is the best Gold ETF of India but remember investment in gold is always better than gold ETF.