Down
the ages, Indians have always had an enduring passion for gold, as it is traditionally
considered a symbol of wealth and prosperity. Currently, India has gold worth
Rs. 24 lakh crore and consumes about 700 tons annually to the world's 3,200 tons.
Thus, being one of the world's largest consumers of gold, India is poised to have
yet another avenue to invest in it. With Sebi's approval of Gold Exchange Traded
Funds (Gold ETFs) in 2005 and further amendment of its Custodians and Securities
Act, mutual fund houses are gearing up to launch Gold ETFs in India.
Although
Indians have great affinity for gold, of late due to escalating gold prices, small
investors have been gradually shunning away from gold investments. Gold ETFs can
better serve such kind of investors who can invest in gold even with meager amounts.
The funds typically inculcate the characteristics of both stocks and mutual funds.
These are exchange traded mutual fund units which are listed and traded on the
stock exchange like any other stocks, and the units can be traded like mutual
fund units. Gold being the underlying asset can be bought and sold in the form
of these units. Net Asset Value (NAV) of the units fluctuates with the movement
of underlying gold prices.
According
to Investopedia, an ETF is a security that tracks an index and represents a basket
of stocks like an index fund, but trades like a stock on an exchange; thus, experiencing
price changes throughout the day as it is bought and sold. It is usually perceived
as an ideal product for retail investors who cannot take informed decisions. The
reason being the ETFs, like index funds, typically reflect the performance of
the benchmark index. Hence, gazing at the astounding performance of benchmark
indices of India, retail investor can also expect similar kind of returns from
the ETFs, instead of struggling to select the best out of hundreds of available
funds. Apart from this, ETFs also have advantages like lower expense ratio and
distribution costs over index funds.
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