Monday, October 17, 2011

Best Gold ETF in India

We did a post earlier on "Best Gold ETF in US" - it was high time we did a similar post for Best Gold ETF in India. So, here it is!

Quick Recap - what is ETF?

ETF or Exchange Traded Fund is an investment fund traded on stock exchanges, just like stocks. ETFs can be based on any of the assets like stocks, bonds, commodities like Gold etc and is supposed to trade close to its asset value. ETFs are interesting for investors as the brokerage/maintenance costs are low and has higher liquidity compared to traditional assets especially in case of Gold. Also, they are easily tradeable and has stock like features.

So, what is Gold ETF?

I think this should be pretty clear now. Gold ETF or Gold Exchange Traded Fund is an investment fund based on Gold as an asset. The price of Gold ETF would be close to its asset value.

We will analyze the various Gold ETFs on similar parameters of volume and operational costs. List of India Gold ETFs that we will use for comparison:

1. GOLDSHARE by UTI
2. SBIGETS by SBI
3. RELGOLD by Reliance
4. GOLDBEES by Benchmark
5. KOTAKGOLD by Kotak
6. RELIGAREGO by Religare
7. HDFCMFGETF by HDFC Bank

As discussed earlier, the price for these ETFs are pretty close to the physical Gold. The differentiating factor for investors is the liquidity and operational costs. So, the returns for Gold was around 41% and most Gold ETFs have their returns from 40% to 41%, so without going into the details, the ranking in terms of returns (highest returns gets ranked first):
1. RELIGAREGO
2. SBIGETS
3. RELGOLD
4. GOLDSHARE
5. KOTAKGOLD
6. GOLDBEES
7. HDFCMFGETF
Remember, the returns are very close - difference is in few decimal places. The average returns remain similar.

From volume perspective, here are the rankings (highest volume gets ranked first):
1. GOLDBEES
2. KOTAKGOLD
3. RELGOLD
4. SBIGETS
5. GOLDSHARE
6. HDFCMFGETF
7. RELIGAREGO
GOLDBEES leads the pack in terms of volume by a big margin - almost by 5 times with the nearest competitor - KOTAKGOLD. RELGOLD, SBIGETS, GOLDSHARE and HDFCMFGETF have similar volumes. RELIGAREGO has the least volume in the pack.

From operational costs perspective, here are the rankings (lowest costs gets ranked first):
1. GOLDBEES, KOTAKGOLD, RELIGAREGO, HDFCMFGETF
2. RELGOLD, SBIGETS, GOLDSHARE
Till last year, GOLDBEES led the pack with the only Gold ETF offering an operational cost of 1%. However, it has changed now with most of the Gold ETFs offering same operational cost of 1%.

Since returns and operational costs are similar now, GOLDBEES and KOTAKGOLD have distinct advantage because of significantly higher volume compared to others. So, one could consider investing in either of these Gold ETFs - GOLDBEES and KOTAKGOLD, if one is interested in investing in Gold. Though, since Gold has been very volatile of late, it is best to invest in systematic investment plan (SIP).

Recommended Post for you: eGold vs Gold ETF vs Gold Coins


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