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ETF GOLD V/S.

E-GOLD

ETF GOLD VS. E-GOLD

Since the beginning of time, gold has had a special place in history. It has been used to build religious idols, settle political differences, honor monarchs, demonstrate affection, serve as currency and, more recently, has been used for commercial processes. Until 1971, the U.S. dollar was backed by gold, which is still held by central banks around the world for use in times of emergency. It also holds promise for traders - if they can find the trend in this often volatile commodity.

Ways Of Investment In Gold


Physical gold from jewelers/banks:
Buying physical gold from jewelers has been the traditional way since centuries. And within physical gold, jewelry has been the most common form of purchase. The balance, in relatively small quantities, has been the gold coins and bars. Recently, banks too have started selling gold coins/bars.

Gold ETFs
Gold ETFs are mutual fund schemes that invest only in gold. Thus it is as good as holding gold; except that it is held electronically. Generally 1 unit of Gold ETF is roughly equivalent to 1 gram of gold and hence its price is also roughly equal to price of 1 gram of gold. You can buy a minimum of 1 unit of Gold ETF.

Ways Of Investment In Gold (cont.)


Equity-based Gold Funds
These are mutual fund schemes that - instead of investing directly in gold buy the equities of companies engaged in mining, extraction, processing and marketing of gold.

E-Gold
Launched recently by the National Spot Exchange, e-gold is also an electronic form of holding gold - except that herein you are directly the owner of gold whereas in Gold ETF the Asset Management Company is holding the gold. Unlike Gold ETF, e-Gold also offers the facility of physical delivery. However, given the additional costs involved viz. delivery charges, VAT and octroi, it may be better not to opt for physical delivery.

E-GOLD

E-GOLD
Looking at the Indian tradition and culture most of common man are attached to gold in various forms i.e. gold coins, bars, jewelry, etc. You would invest in gold to hedge against rising inflation cost or for short term to earn some profit in rising gold prices. Now-a-days while investing in gold retail investors take into consideration the liquidity, cost, quality and security of this gold as an investment. But, its difficult to answer which option is best while investing in gold among various alternatives and how secure your investment is?? To benefit investors in gold National Spot Exchange Limited (NSEL), India has come up with the handsome solution for the problem mentioned above by offering E-series to invest in gold. In this, Indian retail investor can trade in commodities especially precious metal like gold in e-form. Like equities one can keep their gold in demat form, which not only saves on insurance cost and locker rent but also invest in small denominations.

Points to remember while investment in gold as e-form


Retail investors are require to open a demat account with any of the Depository Participant (DP) of NSEL, India. You need to have a separate demat accounts for commodities and for equities. Trading settlement is done on T+2 days. You can take physical delivery of gold by surrendering the required units to the exchange. Presently there are three delivery centers of gold in India i.e. Mumbai, Delhi and Ahmedabad.

Pros of investing in gold as e-form


An investor can buy and sell gold in small denominations. For example: 1gm or 2gm of gold. Transaction reflects in your demat account. Gold rates on NSEL are based on Indian market rates. Transparency in pricing and seamless trading is key advantages of trading in e-product. No holding cost. E-gold gives better returns as compared to ETFs, since fund houses charges some additional costs. NSEL charges 0.4% while it is 2.5% for ETFs. Easy liquidity as you can sell it off whenever required.

Cons of investing in gold as e-form


There is no personal feeling of holding the gold in hand as DP holds it on our behalf. Hacking of account sometimes an issue leading to security part. Custody charges 60 paisa per unit per month.

ETF

EXCHANGE TRADED FUND


A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold

Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.

ETF-GOLD
Gold- Exchange Traded Funds (ETFs)
Each share of these specialized instruments represents a fixed amount of gold, such as one-tenth of an ounce. These funds may be purchased or sold in any brokerage or IRA account just like stocks. This method is therefore easier and more cost effective than owning bars or coins directly, especially for small investors, as the minimum investment is only the price of a single share of the ETF. The annual expense ratios of these funds are often less than 0.5%, much less than the fees and expenses on many other investments, including most mutual funds.

Suitability Of ETF GOLD For Investors


Liquidity Transparency in pricing Tax efficiency Affordability Assurance of purity Convenience and safety Conversion possible

Problems with ETF-Gold


Taxed as a Collectible Market Risk Fees, Fees and More Fees

The 5 Best Performing Gold ETFs


Spider Gold Trust ETF Proshare Ultra Gold ETF I share Gold Trust Powershares DB Gold Fund ETFS Physical Precious Metal Basket Shares

ETF VS E-GOLD

Differences between E-Gold and ETF-Gold


Fund managers track gold prices through Net Asset Value (NAV).NAV of Gold ETF is net of liabilities so NAV and returns of different ETFs are different, While in NSEL e-gold investors directly tracks gold prices. NAV of ETFs are inclusive of custodian charges while NSEL do not charge any holding charges. In e-gold ,investors are directly holding the gold units, while in Gold ETFs gold is actually owned by mutual fund AMCs. Physical delivery in small denominations is possible in e-gold, while in gold ETFs physical delivery depends on sole discretion of ETFs. ETFs may offer delivery for investors holding Gold of higher amount.

Differences between E-Gold and ETF-Gold


We can invest in gold ETF only up to 3:30 PM IST as market get closed. while spot market is open till midnight and we can invest in e-gold series till 11:30 PM. Suppose if gold ETF closed with NAV of 2300 (Time : 3:30 pm) and get closed at e-gold at 2330(At 11:30 pm).Then there is a difference of Rs.30 per gram in both the prices. Gold ETF will try to cover up this difference on opening itself . Investors will not get opportunity to get the price in between. In both cases , buy-sell intraday/delivery brokerages are payable which are in general in the range of 0.3 to 1%. E-gold will be taxed like a Physical gold while Gold ETFs are taxed as Non equity mutual fund

CONCLUSION

Advantage of E-Gold over ETF-Gold


The biggest advantage E-Gold has over gold ETF is that it involves no management costs or other recurring expenses E-gold can be converted into physical gold for quantities as small as 1gm, while gold ETFs offer the option of physical delivery but only for a denomination of over a kilogram Besides, the delivery centres of the National Spot Exchange are located in 15 cities, while ETFs have only one delivery centre in Mumbai The impact cost for e-gold is only 10-15 paisa, as opposed to Rs 4-5 in gold ETFs

The current average daily turnover of E-Gold being Rs 200-250 crore compared with Rs 15-20 crore in case of gold ETFs

Thank You!

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