Investment Analysis of Gold Exchange Traded Funds in India

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Dr. Susanta Kumar Mishra, Dr. Arka Kumar Das Mohapatra

Abstract

Gold ETFs entered into Indian investment market effectively in the year 2006 with the objective to improve liquidity and to enhance market efficiency in virtual gold investment market. Investors of this segment should consider these two factors while taking their investment decisions. The liquidity aspect can be judged by considering the flexibility available with various schemes of gold ETF, whereas the efficiency can be evaluated by comparing the average return and Net Asset Value (NAV) of gold ETFs in India. Gold Exchange Traded Funds (or Gold ETFs) invest only in gold and gold based securities. The gold ETFs are backed by gold, for example 1 unit of Gold ETF is equal to buying equivalent quantity of Gold. For example if one gold ETF = 1 gm of 24 carat gold, then buying, gold-ETF unit every month for 10 years an investor gets 120 gm of gold after 10 years. Thus after the end of the 10th year the investor can convert the gold - ETFs into gold by selling the gold ETFs at the prevailing price of the gold in the market and can take physical delivery of gold.


Gold Exchange Traded Funds are traded on the major Stock Exchanges like the shares of a Company. In India these are traded on both   National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE). Like the shares of any listed company stock these are also transacted daily based on their market price. Thus it becomes necessary to have an Analysis on Gold Exchange Traded Funds to understand whether their returns are better than the market returns. This study will help an investor to decide whether to go for these types of investments.

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