<div><em>If price fall in gold is making you accumulate more, do it the more cost-effective way with ease and no risk of purity and security, says <strong>Sunil Dhawan</strong></em></div><div> </div><div>Gold, that precious metal everyone wants to own. The appetite to own and consume gold among Indian investors particularly Indian household is huge. The news is, gold prices has witnessed nearly 5 per cent decline and may fall further. Currently, it’s trading at around Rs.25,000 in Indian markets while the international prices also tumbled to a five-year low of $1,104. </div><div> </div><div>Is the time right to buy gold? The answer may not come easy. It may fall further from current level or may see a rebound depending on the non-occurrence of the events that is leading to its fall. As an investor, gold warrants a space in one’ portfolio aimed at long term goals. Hold not more than 10 per cent of gold in your investment portfolio. If prices dip, allocate more to the asset else sell when allocation towards gold in your portfolio goes up. </div><div> </div><div><strong><img alt="" src="http://bw-image.s3.amazonaws.com/steps-gold-etf-lrg.jpg" style="width: 645px; height: 225px; margin: 1px;"><br><br>Physical holding:</strong> Holding gold in the form of physical asset such as jewellery costs a lot. There are initial charges as well as making charges that eats into the returns, plus the question of purity and security. Estimate puts cost of investing in jewellery to nearly 25 percent of your investment. What good is an investment when there is such high entry cost? Even gold coins, bricks bought from banks results in 5-8 percent cost on one’s investment. </div><div> </div><div><strong>Paper gold:</strong> The better way to own gold and use it for long term needs in a more cost-effective manner is through investing gold in paper form. One may invest in gold similar to how a mutual fund invest in shares of companies on behalf of its unit holders. Such investment (buying and selling) happens on a stock exchange (NSE or BSE) with gold as the underlying asset. This is called the Gold exchange traded fund (Gold ETF).</div><div> </div><div><strong>What is Gold ETF:</strong> The Gold ETF being an exchange traded fund and can be bought and sold only on exchanges thus saving the trouble of keeping the physical gold. What’s more, the high initial buying and even selling charges that goes into owning jewellery, bars or coins gives an extra edge to the low-cost Gold ETF. The transparency in pricing is another such advantage. The price on which it is bought is probably the closest to the actual gold prices and therefore the benchmark is the physical gold price.<br><br><img alt="" src="http://bw-image.s3.amazonaws.com/gold-listed-nse-lrg.jpg" style="width: 628px; height: 179px; margin: 1px;"><br><br><br><br><div><strong>Features:</strong> What you need is a trading account with a share broker and a demat account. ICICI securities, HDFC securities amongst others can come handy. One may either buy in lump sum or even at regular intervals through systematic investment planning (SIP). What’s more, you may even buy 1 gram of gold. Create a plan to invest systematically rather than trying to time the market. </div><div> </div><div>Even though there are no entry or exit charges in Gold ETF, there are possibly three costs in them. One, is the expense ratio (for managing fund) which is generally low compared to other mutual funds and is around 1 percent. Second is the broker cost that needs to be accounted for every time you buy or sell Gold ETF units. Thirdly, which technically is not a charge but impact returns is the tracking error. It arises because of the fund’s expenses and cash holdings thus not mirroring actual gold prices. </div><div> </div><div><strong>How to pick the right Gold ETF</strong></div><div>There are about twenty Gold ETF in the market. Performance of all would largely be in the same range as it is linked to movement in prices of physical gold. Keep an eye on tracking error and the trading volume of GETF’s. Opt for funds with lower tracking error and higher trading volume figures. There is no lock-in of funds and buying, selling can happen all through the trading hours, therefore avoid partial withdrawals and even early exits and better to link your investments in Gold ETF to a long term goal. </div><div> </div></div>
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