Vol 3 No.

48 February 11, 2013

developments that matter in financial markets

Gold ETFs in India

Gold ETFs: A Backdrop

We want to unfreeze stock of gold in India and bring it back to circulation, for which we announced gold deposit scheme so that part of the gold stock lying unused is unfrozen and comes back into circulation. P Chidambaram, Finance Minister, Government of India

Sept 30, 2008

Mar 31, 2009

Sept 30, 2009

Mar 31, 2010

Sept 30, 2010

Mar 31, 2011

Sept 30, 2011

June 30, 2008

June 30, 2009

June 30, 2010

June 30, 2011

Assets under Management

According to the Association of Mutual Funds in India (AMFI), assets under management (AUMs) under gold ETFs have more than doubled to Rs 98.86 billion as on March 31, 2012, from Rs 44 billion reported in March 2011, showing a year-on-year growth of 124 percent. Also, the share of gold ETFs to total AUMs rose to two percent from one percent in the same period. The 14 mutual fund houses present in the gold ETF segment are managing assets worth nearly $2.2 billion (Rs 120 billion). In terms of gold weight, Goldman Sachs Gold ETF manages 11,218 kilograms, followed by RShares Gold ETF with nearly 9,800 kilograms. Kotak Gold ETF and SBI Gold ETF hold about 4,500 kilograms each. However, at 40 tonnes, Indias total gold ETF holding is only about 10 percent of the 398 tonnes of gold the country imported in the AprilOctober 2012 period. The AUMs with gold ETFs in India have showed a clear sharp upward trend. This explains that the investors preference for gold for purely investment purpose is on the increase and such a trend will likely to have a bearing on Indias import of gold. The confidence of the investors on this product is the outcome of maintaining 100 percent gold reserve. In some of the other countries, ETFs hold only a fraction of the value of assets in gold. Events Corner

Total Gold Imports (LHS)

Source: Association of Mutual Funds in India

Gold ETF (RHS)

This Weeks Table

Gold ETFs in India

Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Source: RBI

Gold Deposit Schemes

In 2013, the Government of India has allowed gold ETFs to deposit part of their gold holdings with banks in an effort to manage the demand for imported gold. The idea was to put the gold corpus of ETFs to productive use. The government had also strongly advocated the cause to unlock the value of idle or unproductive gold lying in vaults across the country.

Name Gold BeES UTI Gold ETF Kotak Gold ETF Reliance Gold ETF Quantum Gold ETF SBI Gold ETF Religare Gold ETF HDFC Gold ETF ICICI Gold ETF Axis Gold ETF MOSt Share Gold ETF Birla Sun Life Gold ETF IDBI Gold ETF Canara Robecco Gold ETF

Date of operation March 2007 April 2007 July 2007 November 2007 February 2008 May 2009 March 2010 July 2010 August 2010 November 2010 May 2011 March 2011 November 2011 March 2012

Tax Benefits
Students and a few faculty members of Winter School in Financial Markets Practice, a programme that provides participants exposure to live markets and financial institutions as also an opportunity to interact with market practitioners. FTKMC organized this novel programme at FT Tower, Andheri, Mumbai, from January 22 to February 3, 2013, for MBA students of Chitkara Business School, Chandigarh.

One of the reasons for investment in gold ETF is the tax benefit compared to bank deposits. Gold ETF does not attract wealth tax and securities transaction tax. For ETFs held beyond one year, the long-term capital gains tax is only 10 percent, unlike the tax rate at 30 percent for interest on bank deposits. Because of this, many investors prefer investing in gold ETFs rather than in bank deposits.

E- Gold in Dematerialized Form

National Spot Exchange Limited (NSEL) has introduced a Systematic Investment Plan (SIP) in e-gold products to
Published by Financial Technologies Knowledge Management Company Limited FT Tower, Suren Road, Chakala Andheri (East), Mumbai - 400093. India Tel: +91 22 6686 6010 Fax: +91 22 6686 6050 Email: marketsinmotion@ftkmc.com Website : www.ftkmc.com

make it more investor friendly and to promote saving and investment. E-gold from NSEL is backed by physical delivery and is stored in the exchanges secured warehouses/vaults, while trading takes place in demat form. An investor can buy/sell in these investment products after opening a demat account with any of NSELs empanelled depository participants. Among the different e-Series products, e-gold has given a healthy annualized return of over 30 percent. It has given a net return of 65 percent in the last two years. Contributed by M Ravindran
March 9, 2013 MUMBAI

Upcoming Programme:
For details, contact: Ms Bhairavee Redkar Phone: +91 99302 67955 Email: bhairavee.redkar@ftkmc.com

PROGRAMME ON INTEREST RATE DERIVATIVES

Disclaimer: This Newsletter is prepared to enhance awareness and for information only. The information is taken from sources believed to be reliable but is not guaranteed by FTKMC as to its accuracy. FTKMC will not be responsible for any strategic or investment decisions based on this content.

Mar 31, 2012

Dec 31, 2008

Dec 31, 2009

Dec 31, 2010

Dec 31, 2011

In recent years, the urban Indian retail investors are showing a marked preference for investment in gold exchange-traded funds (ETFs). Gold ETFs are passively managed mutual funds that invest money collected from investors in standard gold bullion of 99.5 percent purity. The investment objective of gold ETFs is to provide preexpense returns corresponding to the returns provided by investing directly in gold. ETFs are traded on the stock exchanges and are similar to trading shares of companies. Currently, in India, gold can be bought in very small units, even one gram, without the requirement of its storage and safety related issues. So, ETFs and other dematerialized forms of gold have become a preferred asset class for gold investments in India. The first gold ETF was launched in 2007 by Benchmark Mutual Fund (now Goldman Sachs), which was followed by 13 others in quick succession.

This Weeks Graph

.
800 700 600 500 400 300 200 100 0

Gold Imports and Gold ETFs (AUMs)

120 100 80 40 20 0 Rs bn 60

Rs bn