Monday, November 12, 2012

Gold on my mind


This article was originally published in Postnoon on November 9, 2012
http://postnoon.com/2012/11/09/gold-on-my-mind/86843

Diwali is round the corner and the retailers are trying everything from discounts to promotions to free gifts, to lure the customers into buying. Gold has a special place in the hearts of the Indian customers. Buying gold on 'Dhanteras' is considered auspicious and is a part of our culture. But, apart from heart, the mind also has a role to play in buying gold. Historically, gold is seen as a hedge against inflation and less risky than the other asset classes.

In recent times, gold is also being seen as The Performer! In the past 10 years, gold has given a return of approximately 18% per annum, and close to 25% per annum over the last five year period, on a compounded basis. That is much higher than the returns on the other popular classes of investments, be it equities, debt or mutual funds. So buying gold not just gratifies the heart, but also the mind.

To tap on this opportunity, Gold Exchange Traded Funds (ETFs) was introduced on the Indian stock exchanges in 2007. Since then, it has become a very popular product with the current Assets Under Management (AUM) in Gold ETFs being more than Rs10,000 crores.

Buying gold for investment purposes, in its physical forms, comes with associated costs like making charges (jewellery), storage and insurance costs (jewellery, coins, bars) or risks of theft. These are reduced to zero in the case of gold ETFs, while giving returns that are very close to the returns of the physical asset, as each unit of the ETF is equivalent to 1 gram of 99.5% pure Gold. There are transaction costs but they are very small.

The attractiveness of the fund is also due to the fact that they are tax efficient. They are not subject to sales tax, value added tax, securities transactions tax or the wealth tax, which the physical gold is subject to. The ETFs can also be exchanged for 99.5% pure Gold when needed, in multiples of 1 kg. The prices at which the transactions take place are transparent and real time, just like stocks on the stock exchange.

Both NSE and BSE have announced that they will hold special trading sessions for gold ETFs alone on Sunday, Dhanteras, November 11th, from 11.00am to 3.30pm. BSE has also announced to waive off any transaction costs as well on that day. So this Diwali, make a new beginning, by investing in Gold ETFs. Even if it is only for 1gm of Gold. It's just a better way of investing in gold.

Here's wishing all the readers a very happy and prosperous Diwali!

Disclaimer: The author is not associated with any fund house or the exchanges offering Gold ETFs. The author has not yet invested in Gold through ETFs but plans to do it this Diwali.
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