Gold has been a fascinating assets class for Indians. Whether it’s an occasion of marriage, birthday or any other event, gifting gold has been in our tradition. Apart from this gold is also considered as safe haven in case of any adverse situation. Even across the globe buying in gold increases whenever there are troubles in other financial markets. Why individuals, even countries too pile up gold reserves for the same reason. Overall gold is considered to be good investment avenue when it comes to the safety of our well-being. But will you invest in gold bees ETF? An exchange traded fund?
Having said that, gold as an asset class has its own risk return dynamics. In last few years we have seen how volatile this asset class can be. Although physical gold remains the preferred choice it’s the emergence of ETFS which has brought more volatility to this asset class. A passive style of investing ETFs can be bought and sold like a stock which means it gives an opportunity to even trade in Gold ETFs. But ETFs also bring cost effectiveness as compared to physical gold. One of the oldest gold ETF present in India is Gold BEEs which is owned by Reliance Mutual Fund Now..
Let’s review gold Bees ETF and see why investing through ETFs makes a more wiser option than physical gold-
Gold Bees ETF
As the name suggests this is an ETF or Exchange Traded Fund whose underlying investment is gold. This was launched by Benchmark Asset management in 2009. Benchmark AMC is well known for launching only ETFs in India well ahead of time. Later it got sold out to Goldman Sachs which got merged with Reliance Mutual Fund. The ETF is traded both on BSE and NSE and have an expense ratio of 1% which is the average expense ratio of larger Gold ETFs.
Performance of Gold ETFs
The period of 2008-2012 saw a stupendous performance from gold ETFs when they clocked annualized return of 25-30%. The volumes of ETFs surged from Rs 96 crore in 2006-2007 to Rs 3650 crore in 2011-2012 with GOLD BEES receiving the highest inflows. Post 2012 the interest in Gold ETFs have come down which can be seen from the corpus size and trading volumes. Even Gold BEEs remains the most traded Gold ETF today and with a sizeable corpus.
The 2 charts below show the average volumes traded in Gold ETFs and the returns across various horizon-
| ETF | AVERAGE TRADED QTY* |
| Axis Gold ETF – AXISGOLD | 2561 |
| Birla Sun Life Gold ETF – BSLGOLDETF | 2729 |
| Goldman Sachs Gold Exchange Traded Scheme – GOLDBEES | 15216 |
| HDFC Gold Exchange Traded Fund – HDFCMFGETF | 2679 |
| IDBI Gold ETF – IDBIGOLD | 2689 |
| Kotak Gold Exchange Traded Fund – KOTAKGOLD | 11637 |
| RelianceGOLD Exchange Traded Fund – GOLDSHARE | 2,087 |
Trading Volune Data as on 23 May 2017 Taken from NSE
As can be seen GOLDBEES remains the most traded gold ETF followed by Kotak Gold ETF.
Performance Chart
| Mutual Fund Scheme | AUM (Rs. cr.) Mar 17 |
1yr | 2yr | 3yr | 5yr | |
| * Returns over 1 year are Annualised | ||||||
| R*Shares Gold ETF | 491.56 | 16.3 | 7.3 | 0.7 | 0.8 | |
| Reliance ETF Gold BeES | 2,795.93 | -4.4 | 2.0 | 1.6 | -1.0 | |
| HDFC Gold Exchange Traded Fund | 516.16 | -4.5 | 1.7 | 1.3 | -1.1 | |
| SBI – ETF Gold | 841.51 | -4.5 | 1.8 | 1.5 | -1.0 | |
| Kotak Gold ETF | 461.30 | -4.6 | 1.7 | 1.4 | -1.2 | |
| Axis Gold ETF | 195.95 | -7.1 | 0.4 | 0.5 | -1.7 | |
| CATEGORY AVERAGE | -3.2 | 1.5 | 0.8 | -0.9 | ||
Source : MoneyControl
The above chart shows the performance of Gold ETFs. Reliance ETF Gold Bees still has corpus of Rs 2795 cr making it the most liquid Gold ETFs and preferable. However, when it comes to performance, Gold Bees fares better than other gold ETFs. Post 2012 when gold reached its peak of Rs 31050 per 10 grams, it has been on a decline and so the performance from ETFs too has turned upside down clicking negative returns for 5 year horizon.
Gold As Asset Class
Since its gold ETF it cannot be reviewed without discussing gold. As an asset class gold has been looked as a defense alternative. This can be known from the fact that the surge in gold buying does happen whenever not so good news flows for the economy. But it too has its own reason. Gold can be easily pledged in case of emergencies and is a currency which is easily acceptable across the globe though some restrictions may apply. Lastly the presence of a physical asset gives more satisfaction emotionally thus making it feel safer than any other option.
Coming to gold prices last five year it has hovered between Rs 2500 to Rs 3500 per gram. When you look at long term historical data then the average return is higher. The chart below shows year on year return from Gold and average return of 12% in last 15 years which is a considerable option. Consider gold purchases at different time horizon and the acceptable average return will be around 9%.