Investors across that country now have another investment option where they can buy Exchange Traded Funds of Gold currently being managed by UTI Mutual Fund and Benchmark Mutual Fund in an innovative, cost-efficient and secure way. The returns generated correspond to the domestic price movement of physical gold.
Gold as an investment class has certain advantages as it is less volatile as compared to equity, its value remains stable over a period of time and act as a hedge against inflation. Though it has a low return potential, still liquidity is high, has a low holding cost and diversifies investment.
Similarly, investing in Gold ETF also come with certain advantages like there are no security and storage issues, prices are transparent, can be traded easily in demat form like shares, plus it its exempt from wealth tax unlike physical gold. The purchase and sale prices is linked to international gold prices and each unit of fund would represent price of 1g of gold. There are no risk of impurity and theft, and from taxation point of view, long term capital gain tax at reduced rates is charged after 1 year of purchase as compared to 3 years in purchase of physical gold.
In India, such funds may prove successful as it is the World’s largest gold consumer, there is a social compulsion of saving in gold for many Indians and it is acquired and stored in the form of Jewelry, Bars, Coins, Gold Deposits.
Though such funds may have certain downside too, they have exit and entry loads, the sponsors liability in case of default in payment has limited liability, natural calamities and human actions may pose a risk to the gold assets of the sponsor, and investment decision of the mutual fund may not be profitable.
But it would surely provide a different asset class in our portfolio as gold is a commodity as well as a monetary asset.