| Reply 1 : What is Gold ETF?
Gold ETF is an exchange traded fund. Gold ETF’s prices are connected to prices of gold, Gold ETF is also called as paper gold. Gold ETF is a kind of mutual fund which is open ended and which is also available on stock exchanges for trade.
Generally in Gold ETF the company holds 99% of the assets under gold and rest 1% under cash. It keeps all its gold under safe vaults, mostly in foreign shores, where it doesn’t has to pay any tax on the asset. The gold held by this mutual funds is of 99.99% purity. The minimum number of units that an investor can buy/sell on the exchange is 1 unit; each unit will equal (approximately) the price of 1 gram of gold (In some cases it is 0.5 grams of Gold)
Advantages of ETF:
ETFs are supposed to be tax efficient because there have a lower churn of the portfolio owing to the passive management strategy.
ETFs can be traded during market hours and can be sold short or margined.
ETFs have a lower management cost than conventional mutual funds because ETFs do not have to bother about shareholder accounting. Mutual funds have to spend a considerable amount of time and effort in complying with shareholder accounting processes.
Disadvantages of ETF:
Even though ETFs are designed to track an underlying benchmark index, they may not exactly mirror the performance of the index owing to certain management costs charged by the fund.
Since ETFs are passively managed, they can not provide an active return over the benchmark during upmarket moves unlike actively managed mutual funds where the fund managers is constantly trying to beat the benchmark.
ETFs have a lower management cost than conventional mutual funds because ETFs do not have to bother about shareholder accounting. Mutual funds have to spend a considerable amount of time and effort in complying with shareholder accounting processes.
There are many Gold ETFs available in the market. However ChatpataDun recommends investment in GOLDBEES due to low expense ratio.
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