GOLD
ETF - ECONOMY
News:
Inflows in Gold ETF hit
16-month high at Rs 1,028 crore in August
What's
in the news?
●
Gold exchange-traded funds (ETFs)
attracted Rs 1,028 crore in August, making it the highest inflow in 16 months,
amid continued hikes in interest rates in the US, which led to a slowing down
in growth rate there.
Gold
Exchange Traded Fund:
●
A Gold ETF is an exchange-traded fund
(ETF) that aims to track the domestic
physical gold price.
●
They are passive investment instruments that are based on gold prices and
invest in gold bullion.
●
In short, Gold ETFs are units representing
physical gold which may be in paper or dematerialised form.
Features:
●
One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high
purity.
●
Gold ETFs combine the flexibility of stock
investment and the simplicity of gold investments.
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Gold ETFs are listed and traded on
the National Stock Exchange of India
(NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company.
●
Gold ETFs trade on the cash segment of BSE
& NSE, like any other company stock, and can be bought and sold
continuously at market prices.
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Buying Gold ETFs means one is purchasing
gold in an electronic form.
○
One can buy and sell gold ETFs just as one
would trade in stocks. When one actually redeems Gold ETF, she does not get
physical gold, but receives the cash equivalent.
●
Trading of gold ETFs takes place through a
dematerialized Account (Demat) and a
broker, which makes it an extremely convenient way of electronically investing
in gold.
Gold
ETFs Vs Sovereign Gold Bonds:
●
Total
returns on investment through gold ETFs is lower than actual return on gold
(*Actual return (per gram) is assumed as = Price of gold per gram on trading
exchange on date of sale - Cost of purchase of that gram of gold) whereas it is
higher than actual return on gold in case of Sovereign Gold Bonds (due to the
interest paid on the bond during holding period).
●
Unlike
Sovereign Gold Bonds, gold ETFs can’t be used as collateral for loan.
Go
back to basics:
Exchange
Traded Fund (ETF)
●
An ETF is a collection of investments such as equities or bonds.
●
It is a basket of securities that trades
on an exchange just like a stock does.
●
ETF share prices fluctuate all day as the
ETF is bought and sold, which is different from mutual funds, which only trade
once a day after the market closes.
●
ETFs can contain all types of investments, including stocks, commodities, or
bonds.
●
They have cheaper fees than other types of
funds.