Gold Exchange Traded Funds (ETFs), which have been launched recently in India, provide an array of advantages to the retail investors eyeing the precious metal.

Since its discovery, gold has been considered the most precious of all metals. Gold investment means holding gold in physical form, mainly in the form of gold bars, gold coins or gold jewelry. This entails holding cost, which includes the cost of safe deposit vault in the case of gold bars or coins. In the case of jewelry, the holding cost includes risk of losing value upon conversion to cash, risk of loss due to theft and safety vault charges. This holding cost remains the main restraining factor in gold investment. Other constraints in gold investment lie in price differences between one dealer and the other, making charges of gold jewelry, insurance costs and, of course, suspicious quality-related issues. But, now the Indian investors have every reason to cheer. This is due to the introduction of Gold Exchange Traded Funds in the Indian market. This article provides a better understanding of the same in two distinct sections. Section I deals with conceptual and operational understanding of gold ETF and section II deals with the evaluation of gold ETF.

Gold ETF is an exchange-traded fund which replicates the yellow metal. The investor in gold ETF holds gold in proportion to the number of units of gold ETF. Each unit of Gold ETF represents a certain value of the metal. The value of investment in gold ETF keeps in tandem with the gold prices. It is listed and traded on stock exchanges like any other stock, and is held in Dematerialized (demat) form. In essence, gold ETF is an opportunity to diversify one's portfolio by investing in gold, without any hassles of handling the precious metal. Thus, it can be well said that gold ETF is a dummy for gold. Presently in India, there are two Gold ETFs, namely Gold Benchmark Exchange Traded Scheme (Gold BeES), managed by Benchmark Asset Management Company, and UTI's Gold Share. The gold ETF seeks to provide returns (before expenses) that are close to the returns provided by the physical gold. Each unit of the scheme is backed by the physical gold that would be held by a custodian. Bank of Nova Scotia, the world's largest custodian of gold ETFs, is the custodian of Benchmark's Gold BeES.

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