I want to invest in a gold exchange traded fund (ETF)…

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: …for the long term using a systematic investment plan (SIP). I am a government servant and a small investor. I have a demat account with FMS Securities, Ajmer. My queries are as follows: how many gold ETFs are there in the market? Please suggest the best gold ETF. For investing in gold ETF, is online demat/trading account compulsory? Can you buy gold ETF both on the BSE and the NSE? Which fund is better — DSPML World Gold Fund or gold ETF?
R.S. Chouhan, Ajmer
A gold Exchange Traded Fund (ETF) is a financial instrument like a mutual fund whose value depends on the price of gold. In most cases, the price of one unit of a gold ETF approximately reflects the price of 1 gram of gold. As the price of gold rises, the price of the ETF is also expected to rise by the same amount. Similarly, a fall in the price of gold will also be reflected by a drop in the price of the ETF. However, unlike a mutual fund, the units of a gold ETF have to be purchased or sold on the stock market. To do so, one needs to have a demat account and a brokerage account with an online brokerage like ICICIdirect, or you may purchase it through your local stock broker.
Most gold ETFs are traded on the National Stock Exchange (NSE), so you will need a broker who is a member of the NSE. There are five gold ETFs in the market today, namely Gold BeEs, Kotak Gold, Quantum Gold, Reliance Gold, and UTI Gold ETF. According to data published by Valueresearchonline, the returns from all the gold ETFs over the last one year have been practically identical.
Unfortunately, it is not possible to start an automatic SIP in a gold ETF by giving post-dated cheques. That is because an ETF has to be purchased on the stock exchange and not from a mutual fund company. If you wish to invest on a monthly basis in a gold ETF, you will have to do so manually by buying the units through your stock broker. The units will get credited to your demat account.