A Study on the Prospects of Gold Etfs in India

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  • Topic: Gold exchange-traded fund, Exchange-traded fund, Gold as an investment
  • Pages : 10 (3344 words )
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  • Published : April 8, 2011
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A Study on the prospects of Gold Equity Traded Fund in India Dr. Sybila Pius Fernandez, Sel. Grade Lecturer, St.Xaviers’ College for Women And Ms. Mallika Mathew, Faculty, Department of Management Studies, Toc H Institute of Science & Technology

Gold occupies a special place in the financial market. On one level, it's simply a commodity metal in wide use in various electrical industries, for dental fillings and for jewelry. However, for many centuries gold served as the universally recognized form of money. Gold coins could be issued by various countries, kingdoms and emperors. But they were always worth whatever they weighed. Coins of the same weight bought the same amount of good whether issued in Rome or China. It now has enormous emotional appeal. Many people believe it is the true store of monetary value. India is the world’s largest gold consumer market. In India, gold is seen a sign of security as well as sign of prosperity. Gold is considered as form of money and is considered as one of the foundation assets for an Indian household and a means to accumulate wealth. In 2009, India accounted for 15% of the gold global market. Over the past 10 years the value of gold demand in India has increased at an average of 13% per year outpacing the country’s real GDP, inflation and population by 6%, 8% and 12 % respectively. Gold Jewellery accounted for 75 % of the total Indian gold demand, the remainder being investment (23%) and decorative and industrial (2%). During first half of 2010,Indian net retail investment in gold increased by 264% to 93 tonnes. Net retail investment comprises individuals purchase of coins and bars. There is a growing interest in gold investment stimulated by high savings ratio (30% of total income of which10% is invested in gold) and the increasing gold investment opportunities available to Indian investors. Thanks to the current economic and political turmoil, gold is in demand as a store of value. It's gone from about $250 per ounce in 1999 to over $1100 in 2010. It generally goes up when the stock market goes down, down when the stock market goes up. People are more likely to buy gold when they perceive a lot of economic and political risk. But traditional ways of investing in gold carry risk and expense. You can buy gold coins, but in small amounts and they can be stolen. In large amounts they're hard to handle. Bullion needs to be stored in a secure area. Therefore, you must pay storage fees. You can invest in gold mining stocks, but you're exposed to company risk. That is, if that company is run poorly you can lose money even while the price of gold is increasing. ETFs offer investors a way to profit from the rise of gold without taking possession of any of the metal or worrying about whether a particular mine will pan out or not.

Objectives of the study
1. To study the new product –Gold ETF 2. To study the competitive advantage of Gold ETF with respect to Physical Gold

3. To study in detail about the Gold ETF launched in India. 4. To study the returns from Gold ETF with that of SENSEX for the period understudy. 5. To study the returns, investors may gain from Gold ETF considering the period of the study of three years. History of GOLD ETF & launch of GOLD ETF in India Gold, according to CRISIL, is an asset class that can be considered by retail investors as part of their investment portfolio. Gold exchange traded funds (ETFs), which have been in existence for almost 4 years, are the simplest means for investors to take exposures to gold. Gold is generally considered to be a very safe investment. Typically, during times of economic instability, gold acts as an effective hedge against other investments. Further, gold has significantly lower correlation to other assets like equity, debt and other commodities. According to Tarun Bhatia, Director - Capital Markets, "The benefit of low correlation with other asset classes makes gold a useful asset for diversification and...
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