Gold exchange traded funds to hit market -Sify

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Gold exchange traded funds to hit market

By R.Pattabiraman


Gold exchange traded funds (GETF) are special types of exchange traded funds tracking the price of gold. They are traded in foreign exchanges. In India, mutual fund regulations have been amended to make way for valuation of gold by GETF. The GETF was proposed in the Union Budget. Gold can be bought and sold in units, similar to the mutual fund units.



Exchange traded fund is like a security. It tracks the index movements. In the case of GETF, the units will have a face value of Rs 100 or Rs 10 each. The investor can buy and sell the units at the prevailing market price. The physical gold can be sold only at a discount and it is a cumbersome process. At present, futures gold is traded in the commodity exchanges and the regulatory mechanism comes under Forward Market Commission. The mutual fund will float the GETF and the regulator is Securities and Exchange Board of India (SEBI). Since gold is already traded in commodity exchanges, such units can be allowed to be traded in commodity exchanges. The necessary amendments can be carried out in this regard.

GETF should value the gold at AM fixing price of London Bullion Market Association in US dollars per troy ounce for gold having a fineness of 995 parts per thousand of gold. The transport cost and customs duty is added to arrive at the price.



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Sify Finance

Gold exchange traded funds to hit market

By R.Pattabiraman


Gold exchange traded funds (GETF) are special types of exchange traded funds tracking the price of gold. They are traded in foreign exchanges. In India, mutual fund regulations have been amended to make way for valuation of gold by GETF. The GETF was proposed in the Union Budget. Gold can be bought and sold in units, similar to the mutual fund units.



Exchange traded fund is like a security. It tracks the index movements. In the case of GETF, the units will have a face value of Rs 100 or Rs 10 each. The investor can buy and sell the units at the prevailing market price. The physical gold can be sold only at a discount and it is a cumbersome process. At present, futures gold is traded in the commodity exchanges and the regulatory mechanism comes under Forward Market Commission. The mutual fund will float the GETF and the regulator is Securities and Exchange Board of India (SEBI). Since gold is already traded in commodity exchanges, such units can be allowed to be traded in commodity exchanges. The necessary amendments can be carried out in this regard.

GETF should value the gold at AM fixing price of London Bullion Market Association in US dollars per troy ounce for gold having a fineness of 995 parts per thousand of gold. The transport cost and customs duty is added to arrive at the price.

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Only banks can act as a custodian for exchanging gold into units of GETF. The process will help an individual to get capital appreciation over the period of time. The GETF can act as a hedge of inflation and also give protection during cyclical fluctuation. Further GETF can act as a portfolio during stock market fall.

GETF allow investors to buy or sell gold without taking delivery of the physical gold. The securities are backed by gold kept in a vault. According to a study, investors purchase gold through GETF at 18 million ounces in foreign countries.

GETF prices changes throughout the day, depending on supply and demand. It is important to remember that while GETF attempt too replicate the return on gold price movements but there is no guarantee that they will do so exactly. By owning a GETF, an investor gets the diversification of an exchange-traded fund plus the flexibility of a unit. Because GETF is traded like units, it can be short sold, buy on margins and purchase as little as one unit. Another advantage is that the expense ratio of GEFT is lower than that of others.

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