Gold ETFs are passive investment instruments that are linked to gold prices and invest in gold bullion.
The LTV relaxation to 90 per cent (only for banks) announced by the Reserve Bank of India (RBI) in August 2020 also contributed to this growth.
Gold price in India has fallen by nearly Rs 12,000 from its high of around Rs 56,000 reached in August 2020. Many investors who wanted to gain from rising gold prices opted to invest in the yellow metal through gold ETF. However, the NAVs of all the Gold Exchange Traded Fund (ETF), which have gold as the underlying asset, are down from the highs seen about six months back. There are about 11 gold ETFs while the largest one in terms of volume traded on the exchange is Nippon India ETF Gold BeES. Nippon India ETF Gold BeES is listed on the stock exchanges such as NSE, BSE and one can buy or sell units all through the trading hours similar to equity shares. Gold BeES ETF similar to other gold ETFs tracks the domestic gold prices.
The NAV of Gold BeES has fallen from a high of nearly 51.50 seen in August 2020 to 39.06, a fall of nearly 25 per cent. Over the last 12 months, the NAV has remained range-bound between NAVs of about 38.39 and 38.97. As on March 18, 2021, the price of Gold BeES is around 39.30 up by nearly 0.40 per cent over the previous day. Yesterday’s decision on the interest rate by the US Fed seems to be in favour of the yellow metal.
The price of gold over time depends on different factors and the interplay between them. The changes in interest rate, dollar value, geo-political events etc have a big role to play in the gold asset price. If US interest rates remain low, the gold price will tend to move up but if yields rise as is seen in current times, the gold price tends to drift down. Investors flock to high yield investments and money flows into such high yielding assets. However, for a long term investor, these events get evened out over the long term.
As opposed to investing money into actual gold like jewellery, gold coins, bars where the charges eat into the profits, gold ETF reflects the cost of actual gold and has low expenses. Gold ETF is almost similar to mutual fund schemes where the underlying asset is the gold as similar to stocks in equity mutual funds. Gold ETFs are passive investment instruments that are linked to gold prices and invest in gold bullion. They are investment products that combine the flexibility of stock investment and the simplicity of gold investments. The best part is that the gold ETF represents paper-gold as the investment is held in your Demat account
Strategy for gold investors
Most financial planners suggest keeping 5 to 10 per cent of their savings in gold preferably through paper gold investment as such as Gold ETF or sovereign gold bonds. The performance of gold as an asset class has witnessed several ups and downs over several decades and, therefore, investing decisions need not be based on short term factors. Rather than trying to time the market, have a regular and systematic investment in gold ETF and earmark those savings to your long term goal.