Gold ETFs offer attractive returns in troubled times
16 Nov 2009
Given its limited statistical correlation with any of the assets classes as factors driving gold prices are different from factors driving other markets, gold makes an excellent portfolio diversifier. In recent times gold prices have performed exceedingly well in the recent financial turmoil which has attracted much investor attention.
Investors have largely put their funds in exchange traded products and physical gold bars and coins, but according to analysts, gold exchange traded funds (ETFs) are the best way to buy gold. ETFs are mutual funds listed on the stock exchange, that can be bought and sold just like one would buy and sell shares.
Gold ETFs have the underlying asset of standard gold bullion and ETFs are just like any other mutual fund scheme with a difference. Instead of being invested in equity shares the collected funds are invested in gold.
Currently, Benchmark, Kotak, UTI, Reliance, Quantum and SBI MFs offer gold ETFs with price of one ETF unit representing around one gram of gold and since these are passively managed funds, the NAV tracks the price of gold in the open market.
When gold prices rule at their all-time high, analysts, investors etc expect gold ETFs (Exchange Traded Funds) to outshine their equity market counterparts.
However, this holds true only over a short run longer term scenarios play out differently with gold funds offering subdued returns as compared to equity funds over a one-year time-frame.
Gold ETFs are new to the Indian market however they can potentially out perform equity -based funds. Returns on gold ETFs are linked directly to domestic gold prices, which are a function of international gold prices
