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View Poll Results: Which is a better option
Gold ETF 17 70.83%
Physical Gold 7 29.17%
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Old 27th July 2009, 16:30   #1
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Default Investing in Gold ETF or physical Gold - Which is better

Hi,

Do not buy from the bank you will not get any appreciation for next 3-4 years for sure. Profit is just for the banks.

Also in Bangalore so called reputed jeweler such as Krishna Shetty refuse to sell bullion gold and coins are in 22 Kt ( if pure) The US liberty $ and SA Rand are two popular gold coin but as gold SA Rand was stopped years back i suspect that they may be as genuine as King Edwards silver coins circulating in Indian market much more in numbers then minted out during the reign of Edward.

Best is to invest in Gold ETF if the gold is for investment.

Regards
Amit

Last edited by amitk26 : 27th July 2009 at 16:32.
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Old 27th July 2009, 23:28   #2
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Invest in Gold ETF with a great deal of caution.

Since market is fairly small (as compared to physical gold or commodity exchange) gold ETF would not always reflect spot (actual) price of gold in Indian markets. Physical + commodity exchange market is 700 tonnes annually. ETF market is just about 6 tonnes.

And you open yourself up to fluctuations in Forex. ETF are benchmarked against spot prices in US/EU markets.

At present, cheapest option is still to buy from local shops.

You would probably get Gold that has been tempered with (even marked ones). But shop would usually buy it back at face value. There was a news item that showed most of the testing labs have not upgraded themselves to check for newer metal impurities.
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Old 28th July 2009, 09:42   #3
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What are costs involved in "dematerialisation" of ETF gold?
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Old 28th July 2009, 09:57   #4
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Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
What are costs involved in "dematerialisation" of ETF gold?
ETF is already in dematerialized form , For buying ETF you just need to have a demat account so cost involved is the cost of operating demat ( 400 to 800 rupees for year) account and DP charges which will be useful for other mutual funds , shares as well.

If you see the difference in ICICI per gram gold rate and per gram market gold rate ETF makes sense but then I am not too sure how the volume affacts the rate as mentioned by others on this thread.

Actually I did stupidity of buying ICICI bank gold in 2005 and there was a difference of around 1400 rupees between market price and ICICI internal gold price. So suppose if this gold was for investment I lost all the advantage for next 1-2 years and as you know gold prices were quite stable from 2005 - 2007 and started rising only after economic crisis started.

Last edited by amitk26 : 28th July 2009 at 10:04.
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Old 28th July 2009, 10:21   #5
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Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
What are costs involved in "dematerialisation" of ETF gold?

There is no cost for demat process itself. But there are some running costs:
  1. There is cost of "borkerage" every time you buy/sell
  2. Fund house would charge 1% fees every year for
    1. Storage cost of gold
    2. Insurance cost of Gold
    3. Fund management charges (salaries for managers / marketing cost etc)
  3. Long or Short term capital gains tax
Investment in ETF is considered to be equivalent to investment in "debt" instruments. And short / long term capital gain tax applies here at the same rates.

So, investment would incur high tax rates if it is for short term (30%)

Since this transaction is reported along with PAN to IT Dept, this is visible in their systems.
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Old 28th July 2009, 11:16   #6
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I want the gold in physical form, only that it I want it, 15 years later. ;-)

Buying ornaments is crazy - because the design would be "out of fashion" by then. So I intent to buy coins / bars and exchange them when the time coins.

Accounting is not an issue - in fact, that the transaction would be reported to IT department is a good idea. And frankly, ETF is a good idea, because that way, if somebody maliciously "raids" me (I am a govt. servant), they get only the account and not physical gold (which could be tampered with). What I am not sure is - are ETFs as safe as physical possession? (bird in the bush vs. bird in the hand)

So, I now have these further questions -

(a) will a normal stock / share broker deal with gold etf?
(b) What is procedure and costs involved in geting physical form of the gold later on?
(c) What is the assurance that the issuing house has physical gold in case there is a run?
(d) Who regulates them?
(e) Can I hold etfs in same demat a/c as my shares?
(f) Is any specific gold etf better than other?

Any pointers to a faq? I looked at the multi commodity exchange's site, I am not quite happy - all they have are futures, and I do not want to do that.
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Old 28th July 2009, 11:53   #7
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This links provide most of the answers
Invest in Gold: The ‘ETF’ way Views on News - Personalfn.com

Some specific answers as per my understanding are given below but I am not tax / investment expert so take it with a bucket of salt.

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
I want the gold in physical form, only that it I want it, 15 years later. ;-)

Buying ornaments is crazy - because the design would be "out of fashion" by then. So I intent to buy coins / bars and exchange them when the time coins.
In coins , bars the valuation will be done by goldsmith and always they detect some amount for impurities , My father says that gold value becomes 0 in three transactions to goldsmith ( braking - making cycle)
So approximately you can loose 10% to 33% of value for converting gold from one physical form to another.
In case it is Assy certified 24 Cr gold ( as sold by banks) you loose around 15 - 20% at the time of purchase itself due to rate difference.

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
). What I am not sure is - are ETFs as safe as physical possession? (bird in the bush vs. bird in the hand)
Theaves can not steal it , No locker required to store , Even in case of locker if there is a dacoity , fire in bank you do not get anything so risk is there.
If you can trust ICICI or Kotak for mutual fund money or your bank deposit there is no reason for not to trust them with gold ETF.

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
So, I now have these further questions -

(a) will a normal stock / share broker deal with gold etf?
You just need a DP account like ICICI direct and you can sell it yourself no need of a broker but yes you can sell in secondry market with help of a broker.
Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
(b) What is procedure and costs involved in geting physical form of the gold later on?
You do not get physical form , read the link above Gold ETF means that they track gold prices and hold gold but does not mean they convert to physical form. For conversion to physical form you need to sell ETF get money and then buy this is profitable as no goldsmith will cut 10 to 30% for impurities etc and can not cheat you with Rhodium mixing in gold.

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
(c) What is the assurance that the issuing house has physical gold in case there is a run?
Same assurance that ICICI , Kotak , SBI or any other issuing bank has money for any other instrument for example your savings bank account or your life insurence policy.
Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
(d) Who regulates them?
SEBI the same body which regulates Mutual funds and equity market.

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
(e) Can I hold etfs in same demat a/c as my shares?
Yes , yes
Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
(f) Is any specific gold etf better than other?
One with lowest expense ratio / admin charges must be best.

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
Any pointers to a faq? I looked at the multi commodity exchange's site, I am not quite happy - all they have are futures, and I do not want to do that.
Commodity exchange is different Gold ETF is not F&O , Ask your local SBI branch or ICICI branch if you are not comfirtabel with a DP account.
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Old 28th July 2009, 11:55   #8
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Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
I want the gold in physical form, only that it I want it, 15 years later. ;-)
Okay so you need an ETF that allows you to redeem in form of "actual" Gold (Instead of cash).


Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
What I am not sure is - are ETFs as safe as physical possession? (bird in the bush vs. bird in the hand)
ETF are supervised by SEBI. They audit each fund to ensure that they have enough liquidity to handle "redemption" requests. ETF funds have to clear physical audits periodically.

Does that give "enough" protection? That is something you would have to answer for yourself.

I would recommend reading a book called SCAM (written by Sucheta Dalal).
It would give you prospective on how these things (Supervision of markets by various agencies) work in India.

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
So, I now have these further questions -

(a) will a normal stock / share broker deal with gold etf?
Gold ETF is a normal stock. So you would sell and buy it like any other stock.

Only difference is, in some casses you can ask for actual gold instead of trading the ETF on stock exchange.

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
(b) What is procedure and costs involved in geting physical form of the gold later on?
Qutie straighforward for fund housses that allow it. You can try this with a samll investment first to see how it actually works.

ETF house can not keep Gold with itself. Gold can ONLY be kept with a bank or RBI approved "Custodian". Cost of delivering to you is determined by "Custodian" bank.

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
(c) What is the assurance that the issuing house has physical gold in case there is a run?
(d) Who regulates them?
SEBI audits and regulated them.

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
(e) Can I hold etfs in same demat a/c as my shares?
(f) Is any specific gold etf better than other?
It is normal share so yes regular demat would be used.

Comarision of ETF is a topic in itself, mainly your trust in fund house, charges (and in your case facility of conversion into physical gold).


This page has major types of ETFs. List of Gold ETFs | OneMint

Quote:
Originally Posted by BaCkSeAtDrIVeR View Post
Any pointers to a faq? I looked at the multi commodity exchange's site, I am not quite happy - all they have are futures, and I do not want to do that.
Multi commodity exchange is not involved here. ETF are traded on stock exchage (though ETF fund house might actually use services of commodity exchange).

Browse through SEBI's website. Its is not easy to navigate, but its quite informative.
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Old 25th March 2010, 10:22   #9
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Default Investing in Gold ETF or physical Gold - Which is better

Friends,

Have been planning this one for quite sometime now. I just want to know what is the better option - investing in Gold ETFs or buying physical gold. There are pros and cons to both. I have tried listing them as below.
Gold ETF:
Pros - Gold in Units form, no security risk, no need of storage.
Can be purchased in any weight denominations
Better performance, better returns
Spares from Quality concerns
Cons - Need a demat account, broking account
No SIP feature from originator, SIP available from broker.
Initial investments through NFO's only. Broker charges applicable
Linked to market conditions

Physical Gold:
Pros - Min Locker charges
No selling expense if from same vendor
Physical gold on hand.
Cons - Thin volume of trading, cannot sell easily
Need to have bank lockers for storage, locker charges
A big security risk for keeping gold in physical form.
Buying most active during festival seasons.

Ideas/Suggestions invited.
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Old 25th March 2010, 11:10   #10
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Good topic.
I have also decided to invest every month a small amount of my portfolio in Gold ETF. I will be using my ICICIDirect demat account to do the same.

However one problem with doing SIP in gold ETF is that you can't have auto debit like in the case of Mutual funds every month. So will have to manually buy the Gold ETF units just like stocks through my demat account every month.

I am looking at Gold BeES and UTI Gold ETFs.
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Old 25th March 2010, 11:27   #11
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Gold ETF's make a lot of sense. Simply buy a set number of units every month and you have the necessary diversification in your portfolio. Gold BeES (Benchmark), Kotak Gold ETF and Quantum Gold ETF are good. Quantum offers the smallest denomination which is 1/2 gram while others offer 1 gram.
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Old 25th March 2010, 11:36   #12
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The biggest problem with buying physical Gold is , that you can not be sure of the quality, unless you are buying it from the banks. And if you buy from the banks, they don't buy it back from you. Which kind of puts you into a quandary.
If you have decided to have Gold as an item in your portfolio, then ETFs are the best bet. In addition to this, they also provide you with the liquidity, which might not be there if you have physical gold.
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Old 25th March 2010, 11:45   #13
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Gold ETF is easier now - to handle and to sell
Godl Bees will reflect the market fluctuation on physical gold more accurately, SBI Gold ETF is also good.
I invest some part every month into Gold, long term returns are lesser, but more stable.
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Old 25th March 2010, 12:05   #14
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Good discussion. My comments are inline.

Gold ETF:
Pros - Gold in Units form, no security risk, no need of storage.
Quote:
Can be purchased in any weight denominations
Actually no. Can be purchased at 1 unit (~= 1g ) granularity.
Quote:
Better performance, better returns
Price is directly linked to the market price of gold. That is the reason all gold ETFs have practically the same price. Only differentiating factor is the expense ratio. Meaning performance of ETF is no different than physical gold.

Spares from Quality concerns

Cons - Need a demat account, broking account
No SIP feature from originator, SIP available from broker.
Initial investments through NFO's only. Broker charges applicable
Quote:
Linked to market conditions
Not true. Since price of ETF is directly linked to the market price of gold, its price has nothing more to do with stock market condition than physical gold.

Need to pay maintainance charges to the fund house. Typically 1% per annum which eats into the gains.

The whole amount invested is not used to buy gold. Fund houses keep 0.5 - 1% in cash to service redemptions etc.

Physical Gold:
Pros - Min Locker charges
No selling expense if from same vendor
Physical gold on hand.

Cons - Thin volume of trading, cannot sell easily
Need to have bank lockers for storage, locker charges
A big security risk for keeping gold in physical form.
Buying most active during festival seasons.

Have to pay service/die charges and VAT. This can be huge - up to 10%.

If buying jewelery - making charges can be as high as 30%

Bottom line - Gold ETF make a lot more sense for investing in gold.
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Old 25th March 2010, 12:38   #15
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Another thing with physical gold is that many people (esp the fairer sex) have a mental block when it comes to selling. No such issue with Gold ETF.
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