Tuesday, September 22, 2009

Investors keep faith in Gold ETFs

Despite the equity market upsurge and a rise in gold prices, the yellow metal does not seem to have lost any sheen as an investment avenue, investors continuing to repose their faith in gold. As a result, inflows into gold ETFs and sales of gold coins have gone up of late. Demand for gold increases during the festive season starting Dussera, as the period is regarded auspicious for buying the yellow metal.

With increasing awareness among people of gold as an investment option, even asset management companies (AMCs) are seeing a pick-up in demand for gold exchange-traded funds (GETFs), whose units are traded on NSE. “We recorded the highest volumes on September 16, when 95,000 units were purchased. People are gradually coming to accept the idea that GETFs are the best form of investing in gold. Expectations of high inflation have also played a role in pushing up demand,” informed Sanjiv Shah, executive director of Benchmark Asset Management Company.

Investors looking at GETFs and coins would do well to keep in mind certain factors. The former’s pricing structure is transparent and returns yielded by all gold ETFs are identical, thus simplifying the decision-making process. In case of gold coins, however, one needs to evaluate the mark-up on the coins — depending on whether the seller is a bank, an NBFC or a jewellery house — their purity and, also, the margin that a resale would entail. Banks sell coins of 99.99% fineness. “Most of these coins/bars are manufactured at PAMP Refinery Switzerland. A coin comes along with tamper-proof packaging and international assay certification,” says Seshan Ramakrishnan, head, retail liabilities product group at HDFC Bank. On such coins, banks charge a premium of nearly 10% over the market rate, based on the bank’s fixed fee; consignor’s making charges, value-added tax and customs duty. All these charges again, vary depending upon the weight of the coin. Hence, if you a buy a 10-gram coin instead of 5-gram one, you could be paying a higher premium. Banks import coins on a consignment basis from overseas gold refineries. “Banks assure purity of the gold they sell and make them available in pilfer-proof packaging. Not all jewellers sell high-purity gold coins in such packing. However, some reputed jewellers do so, and in that sense are alternate sources for coins,” says KVS Manian, group head, retail liabilities of Kotak Mahindra Bank. However, as per existing stipulations, banks cannot buy back these gold coins. If investors want to sell a coin purchased from a bank, they will have to turn to jewellery stores.

Source: The Economic Times

No comments:

Post a Comment

Blog Archive