Any investor in gold has three methods by which they can invest:
1) Bullion;
2) Individual equities;
3) Funds that invest in gold and gold-related equities (gold mutual funds, Exchange Traded Funds - ETFs, etc.).
Gold has always been a preferred investment instrument for not only Indian investors but for every Indian family as well as societal functions. It is used as a hedge against inflation, stock market declines, equity market downturns, and falling currency rates. It one of the best investment options with higher returns than either equity or debt instruments. Investing in this precious metal and commodity can be done in several manners; through mutual funds or through Gold ETF’s (exchange traded fund).
Gold Trading is traded based on the intra-day spot price, derived from over-the-counter gold-trading markets across the world. The price of gold is determined by supply and demand as well as speculation. The different investment vehicles by which gold is traded include Gold bars, Gold coins, Gold Certificates, Gold Accounts, Derivatives, such as gold forwards, futures and options, currently trade on various exchanges around the world and over-the-counter(OTC) directly in the private market. Investors can buy the companies that produce the gold as shares in gold mining companies.
Various banks in India such as SBI, HDFC, ICICI, HSBC, IDBI, etc. offer Gold investment schemes wherein the bank ensures its safety and also earns an interest on it. These gold deposits provide the depositors with almost all the comforts of holding ‘actual’ physical gold (i.e. a life time asset, a traditional hedge against inflation, etc.) and a source of liquidity. It only shifts the place of holding from lockers to the bank and the form of gold from jewellery to bullion.
Investing either in a Mutual Fund (MF) or a Gold ETF involves collecting money from many investors who invest on your behalf. The main difference between the two would be that MF’s invest the money in shares and debt instruments, whereas Gold ETF’s invest your money in physical gold. While mutual funds are bought directly from a fund house; ETF’s are bought and sold on the stock exchange.
Exchange-Traded Funds (ETTF’s) are ‘open-ended’ funds that trade on a stock exchange; similar to shares of an individual company. Each unit of an ETF represents a portfolio of stocks, whereas
Gold ETF’s are exchange traded fund that aim at tracking the price of gold. It basically refers to the purchase of gold in electronic form. Gold ETF’s are commodity exchange traded funds that are used to hedge gold commodity risk or gain exposure to gold itself. Gold ETF’s are funds that put the investor’s money in physical gold unit’s usually 1kg bars. They do not indicate that you actually OWN gold (gold bar, bullion, or even a ring), but rather you own gold contracts and derivatives; that can be redeemed only for money/cash – never for gold- the actual asset. The strategy behind a Gold ETF is basically to track and reflect the price of gold. By investing in Gold ETF’s, investors get an opportunity to gain exposure to the performance of gold. Gold tends to rise when the dollar is weak.
A mutual fund is an investment vehicle that is made up of a pool of funds that are collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other similar such assets.
There are three types of mutual funds:
1) Equity funds (stocks)
2) Fixed-income funds (bonds)
3) Hybrid funds
Some of the popular mutual funds in India include DSP Blackrock Mutual fund, Franklin Templeton Mutual fund, ICICI Prudential Mutual fund, HDFC Mutual fund, Reliance Mutual fund, Kotak Mahindra Mutual fund, Birla Sun life Mutual fund, UTI Mutual fund, etc. With approximately 33 different mutual funds and close to 400 mutual fund schemes; some of the top mutual funds to invest in India include DSPBR Top 100 Equity Reg, Franklin India Bluechip, ICICI Prudential Dynamic, Reliance Equity Opportunities HDFC Equity, etc.
Author: lindadale
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