Gold ETFs in India

Investing in a Gold ETF fund has following advantages

1. We buy Units issued by the Gold ETF fund instead of actual Gold. This means even small amounts can be invested. A good habit of systematic investing in Gold can be developed by investing affordable amount each month to buy units from the Gold ETF fund.
2. One Unit in the Gold ETF will have a value equal to one gram of Gold (99.9% pure 24 carat)
3. Since we are investing in units backed by 99.9% pure gold, there is no loss of making charges (gold jewelery) and wastage (gold jewelery). So buying units in Gold ETF has no such loss components in the price to the buyer like in buying gold jewelery.
4. Selling Gold jewelery will also have loss components since scrap gold (gold jewelery when sold back to jewelers) will always be purchased back by jewelers at discounts to market price. In Gold ETF, selling units is simple and straightforward, you get the complete market value of the units sold. As explained before each unit sold will fetch you the market price of one gram of 99.9% pure gold.

One disadvantage of Gold ETF is that, the actual gold will be with the Mutual Fund. We buy and sell units which are backed by this actual gold held by mutual fund. However if we buy units in Gold ETF from a reputed Mutual Fund and in a proper regulatory environment this disadvantage can be ignored.

I have been following Gold ETFs since they are available in India from mid-2007. Gold ETF's issued by Benchmark and UTI are the oldest in India. Benchmark was the first asset management company to file to the regulator, to start a Gold ETF in India. However the first asset management company to issue a Gold ETF in India was UTI.

India's best Gold ETF by 2 year absolute returns (from Sept 15th 2008 to Sept 15th 2010) is the Benchmark Gold ETF (known as Gold BeES). They have the lowest expence charge of 1%. One unit in ETF is equal to 1 gram of gold.