Study of Gold and Gold ETF

Name of Researcher: Simran Sayed

Ayesha Shaikh
Zeba Shaikh
Yaasir Mithagre
Sajid Khan

Abstract:
The study analysis in the investment of people in Real Gold and Gold ETF.

Introduction:
Gold ETF
Gold ETF are a non-physical form of gold investment. Gold ETFs (Exchange Traded Fund) are
listed schemes that invest in underlying gold bullion. These are listed and traded on major stock
exchanges. Gold ETFs are held in electronic form, where one unit is equal to one gram of gold.

Benefits of investing in Gold ETFs

 Small Denomination
Going to a retailer will require a decent sum of money to buy a very small quantity of
physical gold, also gold shops will not allow one to buy very small quantities of pure
gold. Gold ETFs can be bought and sold in very small quantities and traded in them.
 Cost Efficiency
Another advantage of investing in Gold ETFs is that it is cost efficient. There is no
premium like making charges attached to gold ETF’s, one can buy at the international
rate without any markup.
 Convenience for Long-term Holding
There is no wealth tax on Gold ETFs (in India), unlike physical gold. Also, there is no
issue of storage where one is worried about security etc. The units are held in
 the name of the individual in a Demat account. Typically, this is a problem if one stores
physical gold in good quantities at home or a bank locker.
 Uniform Availability
There is no issue with respect to the availability of Gold Bees(or ay other Gold ETF)
on the exchange, since the exchange is responsible for trading, for buying and selling.
 Liquidity
Liquidity is available since this is traded on the exchange and there are market makers
(Authorized Participants) for creating liquidity. So one does not have to worry about
finding a shop to sell or even worry about mark-downs or even testing purity when
faced with selling.
 No Risk of Theft
Since the units of Gold ETFs are in the demat (dematerialized) account of the holder,
there is no risk of theft.
 Purity
One of the biggest benefits of investing in Gold ETFs the purity is constant. There is no
risk to purity since each unit is backed by the price of pure gold.

Limitations of Investing in Gold ETFs

 If you have made your mind that you need to have that beautiful gold piece that you saw last
weekend while you were on a shopping spree then nothing can turn you in buying gold ETF.
 When it comes to gold ETFs you can redeem them only in terms of cash and not gold as they
are gold contracts and derivatives.
 There are cases where capital gain tax breaks that are applicable to traditional exchange traded
fund do not apply when it comes to gold ETF.
 While you play in gold ETF you cannot ignore the demat account cost and annual maintenance
that you have to pay.
 Before you end up investing in gold ETF it is important for you to check the performance of the
ETF.
 While you invest in gold ETF you cannot ignore the market risks attached to them.
Physical Gold
This has been the traditional way of buying/accumulating gold in India. Physical gold can be
bought in the form of jewellery, ornaments, bars, coins, etc.
Types of physical gold
 Gold jewelry

Gold jewelries are usually used as decoration, and a few of jewelries are worth collecting. It is
easy to buy, and the buyer has the gold jewelry's ownership. However, the acquisition costs are
greatly high. No jewelry can be sold at the buy price. Thus, gold jewelry is not a good
investment product.
 Gold coins

Gold coin is mostly or entirely made of gold. They are usually used as collection by the
collectors, or bought as investment products by the investors. For the small investors, it is an
ideal choice to buy gold coins which issued by a predominant country or respected private
entity.
Since 100% gold is very soft, and is not suitable for coinage or ingots. Therefore, the gold coins
are usually made of an alloy. They are mixed with other metals to make them more durable.
Usually, gold bullion coins size include 1 oz, 1/2 oz, 1/4 oz, 1/10 and 1/20 oz. In most cases,
each coin is dated. The fineness of gold bullion coins are 24 karats (.999 fine), 23 karats (.958
fine), 22 karats (.917 fine), 21 karats (.875 fine), 20 karats (.833 fine), 18 karats (.750 fine), 16
karats (.667 fine), 14 karats (.583 fine), 10 karats (.417 fine).
 Gold Bullion

Gold bullion is defined that it is valued by its mass and purity rather than by a face value as
money, it may be ingots, nuggets, or bars, but its quality meets standard conditions of
manufacture, labeling and record keeping. Each gold exchange trading gold bars has its own
standards. Generally, the fineness standard is 99%, 99.5%, or 99.99%. There are lots of gold
bullion specifications; more common in the international market is 400 ounces, 100 ounces, 10
ounces, 2 ounces, 1 ounce, 1/2 ounces, and 1/4 ounces. Besides, Gold bullion is imprinted with
manufacturer's name, weight, gold content and fineness.
Gold bullion is one of the most lucrative and safest investment way. Compared to gold coins,
additional expenditure of gold bullion investment is not high, such as commission; gold bullion
is with high liquidity so that it is easy to be converted into cash.
 Vaulted gold

Vaulted gold is gold bullion stored in professional bank vaults. Buying the vaulted gold, the
investor has 100% ownership. In fact, only a few of investors request delivery or withdrawal of
vaulted gold holding. As the vaulted gold is stored in professional bank vaults, is more safely
stored than other physical gold stored at home or in a safe deposit box. Generally, the vaulted
gold just includes the costs of buying the physical gold and the costs of its storage.
Consequently, it is more close to the gold price, and cheaper than other physical gold.
If a new investor plan to invest in physical gold, gold bullion should be the first choice which
has the high liquidity and relative cheaper price. When investor purchases physical gold, the
investor must pay the full price. Physical gold investment occupies many cash, thus, it is more
suitable for the strong investors with more idle funds

Benefits of holding Physical gold

 It is a tangible asset. Additionally, this gold can be used for personal consumption.
 In the last five years, gold has given 24% annualised returns. In very long term periods,
gold almost always beats inflation.
Physical Gold Vs Gold ETFs
 Investment
A physical form of gold like coins, bars or biscuits are available in the standard
denomination of 10gm that requires a huge investment. Gold ETFs are available in small
quantities, i.e., even in 1gm.
 Making Charges
Physical gold holds 10-20% of making charges, whereas, gold ETFs don’t hold any
making charges.
 Purity of Gold
In ornaments or jewellery, purity of gold is always in question, but gold ETFs deals with
99.5% purity of gold.
 Pricing
Pricing in physical gold is never uniform, also, prices may slightly vary from jeweller to
jeweller. Gold ETFs are priced as per International standards and are always transparent.
 Wealth Tax
One percent wealth tax is applicable if the value of physical gold possessed by an
individual is more than INR 30 lakhs. Whereas, in gold ETFs, wealth tax is not
applicable.
 Returns
The return charges in physical gold is calculated as follows: - Return = Current price of a
gold minus buying price & making charges of an ornament. And in gold ETFs, the return
is calculated by taking the current price of a gold unit trading on the stock exchange
minus brokerage charges and buying price.
 Storage Cost
Since, many people keep their gold in bank lockers, it attracts storage costs. On the other
hand, gold ETFs do not attract any storage expense since they are held in the electronic
form.
 Liquidity
Physical gold can be purchased from jewellers or banks, but can be only exchanged
through jewellers. Buying/selling of the gold ETF is much easier as it is traded on the
stock exchanges - NSE and BSE.. Read more at: https://www.fincash.com/l/gold-etfs-vs-
physical-gold
Emergence of Gold ETFs in India
 First Gold ETF fund was launched by Benchmark Asset Management Company on
February 15, 2007with a unit equal to 1 gram and it was also listed NSE with a
symbol GOLDBEES. Then after government mutual fund Company UTI also
lunched Gold ETF with NSE symbol GOLDSHARE on March 1, 2007 and size was
same as previous launched company
 Literature Review:
 According to Bang (2009) gold ETF is fundamentally an open-ended mutualfund that invests in
standard gold bullion as its underlying asset. It is also known as paper gold. These
Instruments are listed on the stock exchanges and, hence, can be bought and sold just like
buying and selling of shares.
 DipakMondal (2010)suggested that investors should take exposure in gold by buying
either physical gold, Gold Exchange-Traded Funds or even units of mutual funds,
whichinvest in the stocks of gold mining companies. He also added that due to the crisis
in the European Union, most currencies are witnessing high volatility and unless world
currencies reach some kind of equilibrium, prices of gold would continue to go up. In the
very short-term, there are possibilities of a correction but gold, either in physical form or in
mutual fund units, continues to be a very good investment tool.
 Stein, David (1999): Introduces tracking error as an integral aspect of portfolio management.
The research study explains tracking error in more depth so as to help investors understand the
concept and establish their performance expectations.
 Fisher (2008): In his article, he mentioned that Gold Exchange-Traded Funds (ETFs) have made
investing in the yellow metal very convenient and inexpensive. The study expressed that they
offer a way of participating in the gold bullion market without the necessity of physical delivery
of gold. The study listed out six reasons why gold ETFs are considered as the best way to invest
in the gold. The reasons mentioned are Wealth tax exemption, Income tax benefit, Investment in
small denominations, Hedging Convenience and better holding of ETFs as compared to
physical gold holdings.
 Noblett, Jackie (2010): Suggested that Gold ETFs have witnessed massive flows as institutions,
advisers and individual investors look to gain exposure to the precious metal and with it a hedge
against currency volatility and inflation.
 Athma, Prashanta, & K, Suchitra (2011): Conducted the study which constitutes to fill the
research gap with the objectives to focus on the Gold ETF as a strong asset class. The second
objective is to stress upon the inclusion of Gold ETF in a portfolio for risk diversification and
thirdly, to assist the investor in the selection of the best Gold ETF option and its tax
implications. The findings revealed that Gold prices are less volatile compared to the equities
market which instilled confidence in the minds of investors to possess gold proving it to be a
strong asset class. Inclusion of Gold ETF in a portfolio would diversify the Portfolio risk.
 Mukesh Kumar Mukul Vikrant Kumar and Sougata Ray (2012): Made a study on “Gold ETF
Performance: A Comparative Analysis of Monthly Returns” revealed that Gold investment has
 been a very important aspect for ages across the globe. This paper attempts to analyze the
performance of gold Exchange-Traded Fund (ETF) with respect to risk and return against the
diversified equity fund and market portfolio. The study also examines the role of gold in
hedging equity investment risk. The study is based on data for the period from January 2010 to
August 2011. The analysis shows that gold ETF has given good return in comparison to a
diversified equity fund during the study period.
 P. Krishna Prasanna (2012): Analyzed 82 exchange traded schemes floated in Indian stock
market and evaluated the performance using Data Envelopment method; it is found that large
funds were not efficient and inferred that size does not indicate superior performance.
 PrashantaAthma and B. Mamatha (2012): Compared the index funds, ETF based on tracking
error, price transmission and return. It is suggested that ETF’s are good investment suitable to
individual investors and professionals as they are low cost and more liquid.
 Shefali Sinha and Mahua Dutta (2013), analyzed the performance of Goldman Sachs ETF
against the spot gold price by using tracking error and trend analysis. It is found that Goldman
Sachs ETF generating better performance.
 Ms. K S Nemavathi and Dr. V.R Nedunchezhian (2013): Analyzed the volatility of Gold and
Gold ETF using return, standard deviation, Beta and EGARCH, it is concluded thatthe
performance of product depends on volatility and one has to choose based on return and their
performance.
Objective:
• To study the Real Gold and Gold ETF (exchange traded funds).
• To study the investment decisions of different social class investors in Real Gold and
Gold ETF (in terms of age group, income level, etc.)
• To study about what percentage of people are aware about Gold ETF.
Hypothesis:
• H0 (null hypothesis): People invest in gold ETF’s than investing in real gold.
• H1 (alternate hypothesis): People invest in real gold than investing in gold.
Research Methodology:
• The purpose of the research is to study about interest of people investing in Real Gold
and Gold ETF. Correlational Research Design method is used for the research.
• Correlational research is a non-experimental research design technique which helps
researchers to establish a relationship between two closely connected variables. Two
different groups are required to conduct this research design method. There is no
assumption while evaluating a relationship between two different variables and statistical
analysis techniques are used to calculate the relationship between them.
• Sample Size: The number of observations taken from a population through which
statistical inferences for the whole population are made. The sample selected for the
study consists of youth’s knowledge in the investment pattern. The sample size was 55.

Data Collection:
1) Primary data
2) Secondary data
• Primary data: Primary data is collected by communicating with respondents through a
structured questionnaire. The study was done with the help of primary data using the
questionnaire as a tool to know about people’s interest in buying Real Gold or Gold ETF.
• Secondary data: The study based on both secondary and primary data. The secondary
information will be collected from different published materials viz., Journals, magazines
& websites etc.
Data Analysis:

 On an overall comparision, the 35.2% salaried people are under the income level of
Rs.1,00,000-2,00,000. Self-employed are 18.3% their income level falls under 3,00,000-
4,00,000. The remaining as follows the flow of chat.

 The comparision of the people where do they save and the priority when they
invest.64.8% of respondents invest their savings in the saving bank account on the
 priority of safety. 11.3% people invest in fixed deposits because of high returns. 8.5% in
mutual funds. The remaining people go for shares/ debentures, real estate, etc.

 58.6% respondents know about mutual funds and remaining do not have any idea. The
scheme in which people invest are as follows: 68.8% invest in equity funds, 21.9%
people in debt funds and the remaining in hybrid funds.
 l
 As per analysis, of the above pie chat the investors who feel mutual funds as risk free
investment is 56.1% and because it is a good instrument and they felt it’s better to invest
in mutual funds rather than investing directly in shares. 43.9% said mutual funds are not a
risk free investment.

Findings:
• In the Study we investigated 55 respondents & it reveals that 59.7% Investors are aware
about the Gold ETF whereas 40.3% are unaware.
• The researcher found that out of 73 respondents, 65.8% respondents are invest in Savings
Bank, and 11% in fixed Deposit.
• Priority is the major factor while doing investments as 52.1% are investing in safety &
26% of the respondents are investing in high return and the rest of 16.4% investing in
Less Risk benefits.

Conclusion:
 • There is a significant correction in the gold price in India. Thus, this is a good
opportunity to invest in Gold. Between gold ETF and physical gold, gold ETF is better
since there is no impurity risk and liquidity risk. Besides there is a risk of theft of
physical gold whereas an investor holds gold ETF in his demat account.

Bilography
 https://www.goldpriceoz.com/what-types-of-the-physical-gold.html
 http://ijemr.in/wp-content/uploads/2018/02/A-Study-on-Performance-Evaluation-of-
Gold-ETFs-in-India.pdf
 https://www.quora.com/Which-is-a-better-option-buying-physical-gold-or-gold-ETFs-in-
India
 https://www.fincash.com/l/gold-etfs-vs-physical-gold