ETF GOLD VS E-GOLD

7/29/2019 ETF GOLD VS E-GOLD

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ETF GOLD VS. E-GOLD

ETF GOLD V/S. E-GOLD


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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 fortraders - if they can find the trend in this often

volatile commodity.


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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 goldcoins/bars.

Gold ETFsGold 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 ofGold 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.


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Ways Of Investment In Gold

(cont.)

Equity-based Gold FundsThese 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-GoldLaunched 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 thegold. 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.


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E-GOLD


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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.


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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.


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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.


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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.


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ETF


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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.


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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 orsold 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 onmany other investments, including most mutual funds.


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Suitability Of ETF GOLD For

Investors

Liquidity

Transparency in pricing Tax efficiency

Affordability

Assurance of purity Convenience and safety

Conversion possible


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Problems with ETF-Gold

Taxed as a Collectible

Market Risk Fees, Fees and More Fees


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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


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ETF VS E-GOLD


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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.


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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 arein 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


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CONCLUSION


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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 ingold 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


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Thank You!

Documents

ETF GOLD VS E-GOLD