Gold ETFs arrive in India
Exchange Traded Funds (ETFs) are portfolios of stocks, bonds, commodities, etc. that trade on a stock exchange much the same as a regular stock does. They combine the instant pricing of stocks with the diversification of a mutual fund.
- Can be traded intraday.
- Can be shorted or bought on margin.
- Low annual expenses as compared to mutual funds.
- Trading ETFs involves bid-ask spread & brokerage (like stocks)
- ETF could trade above or below the value of the underlying portfolios.
In India, the earliest ETF was ‘Nifty BeES‘ (Nifty Benchmark Exchange-traded Scheme), launched in late 2001 - this has expanded to 5 ETFs that trade on the NSE. As for the BSE, there’s one ETF tracks the BSE Sensex 30 index - the SPIcE. It was launched in 2003, suspended in 2005 & then re-launched in 2006.
Now on to the topic du jour - there are 5 gold ETFs being launched in India soon:
- Gold BeES by Benchmark Mutual Fund, open for regular trading during the last week of March.
- UTI Gold ETF, NFO period March 1st - 12th.
- Kotak Mahindra Gold ETF, to be launched by March end.
- Prudential ICICI Gold ETF
- Escorts Gold ETF
For equivalent ETFs in the US, check the streetTRACKS Gold Trust (GLD) and the iShares COMEX Gold Trust (IAU).
Benefits of gold ETFs vs. physical gold:
- Lower capital gains tax: 10% for the ETF instead of 20% (long term) or 30% (short term) for physical gold.
- No worries about storing & securing the investment.
- More liquid invetment, easier to buy/sell, and lower spreads.
- Easier to use as a hedging tool.
Of course, not having the physical gold can be uncomfortable for die-hard gold bugs - what if the ETF managers don’t maintain the requisite gold assets as their AUMs grow? Or what if the gold price shoots through the roof, and the government imposes restrictions on these ETFs? And if you are wondering if the launch of these ETFs will boost the gold price in India, check out this article by Adrian Ash, via SafeHaven.
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