Monday, September 27, 2010

Gold ETFs: An excellent alternative to physical gold:

Gold has been a traditional asset-creation vehicle in India. It is popular as a hedge against inflationary pressures and is considered a safe haven for investors. Gold has historically shown a low correlation with stocks, which makes it a valuable component of any portfolio to smooth out any negative performance in equities.

While the global economic meltdown of 2008-09 resulted in the plunging of stock prices, gold continued to hold strong and delivered appreciable returns even in those distressing times.

Buying gold in India was earlier limited to physical holdings in the form of jewellery, bars and coins. But, with the introduction of Gold Exchange Traded Funds (GETFs) in 2007, investors have been presented with a smart route to invest in gold.

GETFs invest in gold bullions, are passively managed and endeavour to track the domestic spot prices of gold. These open-ended funds are listed on both the NSE and the BSE and can be traded (bought and sold) in units much like stocks. You need to have a trading account and a demat account to be able to invest in these funds.

The future

Shares, Rajan Mehta, Executive Director, Benchmark Asset Management Company Private Limited, “Emergence of GETFs have made life simpler for the investors as there is transparent pricing, efficient and convenient resale and hassle free storage”.

We can safely say that although paper gold in India is at a nascent stage, its future looks upbeat! As Rajan Krishnan, Chief Executive Officer, Baroda Pioneer Mutual Fund, says, “Gold ETFs over the next few years has the potential to become one of the biggest asset generators for the mutual fund industry.” 

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