Hdfc sec - Gold ETF and Gold Funds - a review as on Jan 22, 2014

January 22, 2014
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Gold ETF and Gold funds – A Review

Prologue: Gold, as an investment class, seems to have lost its sheen among the investors’ mind in the recent
periods given the significant correction seen in the prices of gold. In the last one year period ended on Dec 31,
2013, Gold in INR terms lost 14.74% (MCX Gold Spot Price) while in USD term lost 27.33%.
Considering the Gold ETF, the AUM of the category declined by 27% YoY and stood at Rs. 8,784 crore (as of Dec
2013). The category saw net outflows in 10 out of 12 months in the last one year period of Rs. 1,816 crore.
Globally, gold witnessed its tough phase in 2013, suffering the biggest annual loss in the last three decades on the
back of US Fed tapering concerns, strengthening dollar, high interest rates, bullishness in the stock market and huge
selling by Gold ETF. In the domestic front, the gold in INR term posted loss lesser than the USD term all thanks to
the sharp depreciation in the rupee value and growing demand despite the regularity restrictions.
Outlook: Going forward, the prices of the gold is likely to move slightly upward in the short term in the domestic
front given the growing demand for gold bars and jewelry in Asia especially in China and India. Apart from seasonal
demand, further depreciation in the rupee value (offset by any regulatory relaxation – import duty cut from the
current 10% - encouraged by improving trade deficit domestically) will support the prices of the gold to some
extent. A pick-up in central bank buying of Gold may also contribute to a positive trend in demand.

However, stronger global economy, strong dollar, a continued tapering in the Federal Reserve’s bond buying, rising
US real interest rates, declines in US equity risk premium, no sign of inflation and lack of buyers interest would
impact the appeal for gold globally. Further, a positive Chinese GDP growth forecast, recovery in Europe, and an
above average risk of supply disruptions would be destructive factors for the gold. Above all, ETF and Hedge funds,
the main driving force behind the prices of gold, seem to have turned bearish as Gold ETFs holdings are now at
lowest level since 2008.

Gold ETF and Gold Funds – A Review

While global uncertainty and jewellery demand could keep demand for gold steady in India going forward, any cut
in import duty, relaxations in import of gold or appreciation in INR vs the USD could narrow the difference in gold
prices in India and abroad that has widened to almost 21% currently (partly impact of import duty and partly gold
physical premium due to import restrictions). Hence in the eventuality of any or all of the above happening, gold
prices in India could remain steady or fall even though gold prices abroad rise or remain steady.
Top performing Gold ETF and Gold FoF:

Note: Trailing Returns (%) up to 1 year are absolute and over 1 year are CAGR.

Gold market in India: India is the world's biggest gold consumer followed by China and US. Indian Households hold
more than 20,000 tonnes of gold according to WGC, that is the largest amount of bullion holdings in the world.
Jewellery and investment are the key areas of Indian gold demand. India’s total gold demand was at 864 tonnes in
2012 which was 12% YoY decline compared to previous year. Higher import duties and import restriction impacted
the gold market in India significantly in the year 2013. Despite the sharp depreciation in the Rupee value against
the Dollar, ban on import of gold coin, 80:20 rule and other import restrictions pulled down the gold demand
significantly. On the other hand, gold that entered unofficially into the country together with recycled gold helped
to meet the pent-up demand in the country. Jewellery demand in India dropped 23% year on year on Q3 of 2013
on the back of import restrictions. Demand for gold Jewellery remains strong however, reduced supply has
prevented the demand to be fully realized.

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Regularity restrictions in India:
The gold market in India has been under stress in the recent periods as the government of India came up with slew
of measures to reduce the gold imports intended to curb India’s Current Account Deficit (CAD). The government
increased the import duty three times in the last one year from 4% to 6% in Jan 2013, 6% to 8% in June 2013 and
8% to 10% in Aug 2013. Further, it increased the import duty on gold jewellery from 10% to 15% in Sep 2013. The
government further announced the total ban on import of gold coins and medallions in Aug 2013 and instructed
that gold is to be supplied only to entities engaged in jewellery business/bullion dealers only on full upfront
payment. An introduction of 80:20 rule further put more stress on the gold import. According to the rule the
importing agencies for gold have to ensure that at least 20% of imported gold is exported.
All these have resulted in gold imports falling sharply to 85 tonnes in Q3’13 from 338 tonnes seen in the previous
quarter.

India gold demand in tonnes:

India - Net imports available for consumption in tonnes:

Source: Gold.org

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Comparison of SIP and Lump sum investments in Gold & Nifty :

• The above table portrays the relative performance of Gold and Nifty investments in different investment
timeframes and different investment mode (lumpsum vs SIP). It is worth noting that the return from
investments in gold whether SIP or lumpsum, managed to outperform in the long run returns from Nifty
investments from both modes. However, the gold saw underperformance during in the short term periods like
two and five years periods due to the significant correction in the prices of gold in the recent periods.

• Lumpsum returns are better if large sums are invested at periods of market bottoms.
• SIP returns are better if it is started at or just after the market tops. Further, SIP route helps out to average out
the cost of the investment.
• To conclude, it is advisable to allocate at least 5% in gold of anyone’s total portfolio for purpose of hedging. The
investor may invest either in lumpsum or through SIP.

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Gold – Background:
 Gold has been a better performing asset over years among the investment options available in the world.
Despite the mediocre performance posted in the short term, Gold has consistently outperformed other
traditional asset classes such as equity, debt, currencies and other commodities irrespective of most of market
and economic cycles with a compounded annual growth rate of 14.5% in USD term and 17.1% in INR term for
the last ten year period. In other words, Gold’s value increased nearly 4 times over between 2003 and 2013,
rising from $363.3 to $1,411.2(as of Dec 31, 2013).

 Given its special status of universally accepted medium-of-exchange, gold has been used as the standard for
many currencies in history.
 Gold is a foundation asset within any long term savings or investment portfolio. For centuries, particularly
during times of financial stress and the resulting 'flight to quality', investors have sought to protect their capital
in assets that offer safer store of value. Gold offers refuge from widespread default risk. It offers investors
insurance against extreme movements in the value of other asset classes.

Gold – History:
• One of the oldest civilizations, the Sumerians of Mesopotamia, who lived in what is modern-day Iran and Iraq,
first used gold as sacred, ornamental, and decorative instrument in the fifth millennium B.C.
• The early Egyptians used gold primarily for personal adornment, rather than for monetary purposes, although
the kings of the fourth to sixth dynasties (c. 2700 - 2270 B.C.) did issue some gold coins.
• The first large-scale, private issuance of pure gold coins was under King Croesus (560-546 B.C.), the ruler of
ancient Lydia, modern-day western Turkey. Stamped with his royal emblem of the facing heads of a lion and a
bull, these first known coins eventually became the standard of exchange for worldwide trade and commerce.
• Gold is traditionally weighed in Troy Ounces (= 31.1035 grams). It has a specific gravity of 19.3, meaning that it is
19.3 times heavier than water.

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Applications of Gold :
Jewellery: Jewellery is one of the major demand drivers for the yellow metal and the demand comes mainly from
India & China who contribute more than 50% of the world jewellery demand.
Technology: The usage of gold in technology is because of its qualities such as corrosion resistance, good conductor
of electricity, etc. Gold is widely used as connectors & wires in various electronic items as its reliability is high.

Medicine: Gold’s medicinal importance has been researched many centuries ago & Chinese and Indian people use
gold for medicinal purposes. Gold in recent years has been used extensively in dental applications, due to its
resistance to corrosion and is not harmful when it comes into contact with body.
Nanotechnology: Gold nowadays is used as catalyst and the gold nano particles have been efficient absorbers of
mercury from the water and act as purifiers.

Space & engineering: Gold has many important qualities such as good reflector of heat & infrared radiation. Gold
coating is applied on various items used in space to protect against various radiations that occur.
Weight Equivalents:

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Factors influencing gold prices :
High Inflation: During high inflation, investors tend to invest in gold as it is seen as a good hedge against inflation.
Rising inflation appreciates gold prices as people start investing in the yellow metal.
Interest rates: The demand for gold increases when the interest rates trend down. Lowering interest rates increases
gold prices as gold becomes a better investment option vis-a-vis debt products that earn lower interest.

Weakness in other asset classes and lack of safe havens: When the economy and financial markets do not do well,
gold investments can provide a good hedge for any portfolio. Gold is negatively co-related to most of asset classes.
Decline of Mine production and Supply: Gold mining and production have been decreasing in the recent periods
while there is an increase in the demand for gold. An increase in the cost of mining, strikes by gold miners, legal
formalities, geographical problems and worsening political situation have led to a fall in gold mining.

Demand and supply factors: A change in supply could alter the price of gold. If there is a sharp increase in
production, its price is likely to fall. Likewise, the fluctuations in price tend to occur due to changes in demand.
Central bank demand: When dollar value depreciates, central banks of most of the developed countries start to
increase their share of gold in forex reserves.
Changes in exchange rates: Weaker USD usually leads to an increase in world gold prices. It is because investors
choose to sell their dollar and buy gold with the hope that gold can protect the value of their dollar assets.
Geo political and economical concerns: Whenever there is uncertainty prevailing in the globe, the prices of gold
shoot up. In the recent financial crisis the gold prices were in uptrend.
Economic data: The macro economic data such as unemployment data, GDP & Home sales also impact gold prices.
When the economy is growing, investors will move the funds from safe assets to the riskier assets, which give
higher returns. Other factors such as speculation, demand for jewellery, changing government policies, government
borrowing, sentiment, liquidity, safe Haven Buying, manipulation, Rising population affect the price for gold.

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Gold Investment Options :
Jewellery: Investing in jewellery may not be considered as investment as jewellery is generally not made from 24
carat gold; it is generally made from 22 carat or 18 carat gold since 24-carat gold is brittle and cannot be set to
beautiful designs of jewellery. Investors have to pay for the making charges and wastages. When liquidated, the
making charges, impurities and wastage will be cut and investors may end up getting less than what had invested.
Gold bars or coins: Government-certified gold coins or bars have purity level of close to 99.9 and they can be sold
easily. Banks charge extra for their coins of anywhere between 5% and 10%. Also the bank coins have lesser
liquidity as they are not bought back by the banks. Bullion bars are good modes for investment but the minimum
investment is much higher.
Gold certificates. is a certificate which represents ownership of gold bullion held by a financial institution for
convenient and safe storage. There is a fee for storage and insurance.
E gold: National Spot Exchange Limited (NSEL), India used to offer E-series to invest in gold. Retail investor can trade
in commodities especially precious metal like gold in e-form. Like equities one can keep their gold in demat form,
which not only saves on insurance cost and locker rent but also one can invest in small denominations.
Gold Exchange Traded Funds: They are mutual fund schemes, listed on the stock exchanges and traded like shares.
The pooled amount is invested in the physical gold. When redeeming the units, investor can go to the fund house
or sell in the market and get them converted in to cash. Gold ETFs are proving to be an easier and safer mode to
buy gold. The charges are very less and the gold can be accessed electronically. Mutual funds further offer gold
fund of funds in which investors can invest as much small amount as Rs. 100 every month and where they don’t
need to have a demat account.
Gold Mutual Funds: Gold mutual funds hold portfolios of gold mining companies and are directly linked to gold
prices. They are actively managed as they are handled by the fund managers. Apart from above, various schemes
announced by institutions to promote savings in gold.

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Rationale behind investing in Gold:
 Gold is valued and traded in all the countries of the world. Gold is the most liquid asset among all options.
 An investment portfolio with an allocation to gold improves the consistency of the portfolio making it strong and stable.
Gold has provided consistent appreciation on a continuous basis over the past decade.
 Gold has a low correlation with major indices/most other asset classes and hence is a good portfolio diversifier. Ideally
Gold should constitute 5-10% of one’s portfolio on a continuing basis.
 Gold is a good tactical hedge against inflation. It has outperformed the consumer price index 7 times out of 10 in the last
ten years.
 Gold is used to hedge currency exposure. It has been a part of portfolios since ancient times to guard against economic
pitfalls or disasters.

 Gold acts as a safe haven during economic crisis and market downturns. The price of gold is not linked to the
performance of an economy, industry or company. Its appreciation is not affected by market volatility.

Rationale behind investing in Gold ETF:
 Investors can buy and sell the units of Gold ETF directly on the stock exchange through registered brokers.
 Units of Gold ETF are held in the demat form just like equities.
 Gold ETFs give an opportunity to investor to invest in standard gold bullion (0.995 purity) without taking
physical delivery of gold nor compromising with its quality.

 No entry/exit load. The total expense ratio charged by funds has been a maximum of 1% per annum.
 These will not be liable to wealth tax.
 A custodian is appointed by the AMC for safe keeping of the gold bought on behalf of the investors.

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Gold ETF:
Gold ETFs are passively managed mutual fund schemes investing in standard gold bullion having 99.5% purity. They
are listed on the stock exchanges for trading with an intention to offer investors a means of participating in the gold
bullion market without the necessity of taking physical delivery of gold. These are designed to provide returns that
closely correspond to the returns provided by domestic price of Gold.
Gold ETF History:
Globally, In May 2003 the first Gold Bullion Security was launched in Australia.
In Nov 2004 the World’s 1st Gold ETF –Street Tracks Gold Trust was launched.

Benchmark Mutual Fund was the first AMC to launch a Gold ETF in India - “Gold BeEs” in February 2007.
As of today, 14 fund houses have launched Gold ETFs.
The AUM of the category witnessed increasing substantially from Rs.96 crore in March 2007 to Rs. 8,784 crore in
December 2013, representing 1% of the mutual fund industry AUM.
Advantages of Gold ETF:
ETFs have more advantages compared to actively managed funds. They are as follows;
Small denomination: Retail investors, who want exposure to gold in small amounts, can opt for Gold ETFs. It allows
investors to buy one unit, which is buying 0.5 - 1 gram of gold depending on the scheme.
Liquidity: Gold ETFs are can be bought and sold any time during the trading hours like equities at the price quoted
on the exchange. This makes it a liquid investment instrument.
Transparent Pricing: The price of ETFs is quoted on the stock exchange and there is a bid/ask during market hours
enabling you to buy/sell at market prices. Thus you do not have to pay a premium while you purchase or a sell at a
discount as in the case of jewellery or even sometimes in coins and bars.
Safety: Gold ETFs is essentially buying gold in paper form. So the investor does not have to take the trouble of safe
keeping of the gold. The custodian appointed by the AMC has the responsibility of taking care of the gold.

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Purity: Mutual funds are governed by SEBI and SEBI regulations require the purity of underlying gold in Gold ETFs to
be 99.5% fineness and above. This spares investors the trouble of finding a reliable source to buy gold.
Tax Efficient: Gold ETFs do not attract wealth tax. Besides, the investment is categorized as long term if it held for
more than a year unlike physical gold where the period is 3 years.

Disadvantages of Gold ETFs:
Demat account: Demat account and broker’s accounts are mandatory for an investor to participate in the gold ETF
trading as they are traded in stock exchanges. However, no demat and broker accounts are necessary in case of gold
fund transactions.
Brokerage Charges: The brokerage charges need to be paid when trading in ETFs. It can be minimized by trading
less but the very charm of ETFs is lost because it is meant for being traded more often than an index fund.
SIP in ETF is not applicable in ETFs. But gold funds provide the facility to invest through SIP with minimum amount
of Rs. 100.
True Replication: The ETFs may not replicate the returns of underlying index due to management expenses, cash
holding and so on which result in higher tracking error
Gold ETFs Market in India:
Over the past few years, the Indian gold ETF market witnessed a significant development notwithstanding a smaller
in terms of size. Indian investors seek greater access to more liquid gold investments the ETF concept have gained
more popularity among them.
The Indian Gold ETF industry offers 14 gold ETFs and 11 gold FoFs. The total AUM of Gold ETF as of December 31,
2013 stood at Rs. 8,784 crore while the AUM of Gold FoF was at Rs. 3,990 crore. As of Dec 2013, the collective
holding by Indian ETFs in gold stood at 30.2 tonnes (approx).
Total traded volume in Gold ETFs also witnessed a rise on the NSE, a daily average of Rs. 25.92 crore in 2013 (Rs.
25.44 crore in 2012, Rs. 41.09 crore in 2011 and Rs. 14.43 crore in 2010) which shows the healthy volume in the
Indian Gold ETFs industry. As far as net flows are concerned, the Gold ETF saw net outflows of 10 out of 12 months
in the last one year period due to decreased investors interest. The category witnessed net outflows of Rs. 1,816
crore during last year. Considering the folios of the Gold ETFs, the number of folios witnessed decline in the recent
periods (especially from Aug 2013) . The total folios for the Gold ETF category as of Dec 2013 stood at 5.24 lakh.

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Trend in the AUM (Rs Crs) of gold ETFs in India:

Trend in the AUM (Rs Crs) of gold Funds in India:

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Physical Holding by Indian ETFs (tonnes) Vs. Gold India spot price (10g):

Correlation between net inflow in gold ETFs Vs. India Gold Spot Price & Sensex:

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Daily turnover (Rs crs) in gold ETFs on NSE over periods:

Daily Average traded volume (Rs Crs) of Gold ETFs over the last one year:

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Gold Demand by Global ETFs over years (in tonnes):

Top global gold backed ETFs:

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Gold Funds (FoF):
Gold Fund of Funds (FoF) are mutual fund schemes (not an ETF) investing primarily in units of gold ETFs. They seek
to provide returns that closely correspond to returns provided by the Gold ETF. They are passively managed funds
which enable an investor to save in the form of gold in a convenient manner either through lump sum investment
or through systematic investment. The face value of the gold funds is at Rs. 10.

Features of Gold Fund (FoF):
Demat account not mandatory: Investors can invest in gold funds through the regular process of subscription i.e. in
physical mode. The subscription through demat mode is an option for the investor but not a mandatory to invest in
gold fund. Demat is compulsory in case of gold ETF investment.
Cost Effective: Investing in physical mode enables you to invest at a lower cost as the investor does not have to
incur the charges for the demat account and brokerage.
Liquidity: Investor can subscribe or redeem the units on all business days directly with the Fund. The face value of
the gold funds is at Rs. 10. Exit load is charged between 1% to 2% by all gold funds. Apart from the expenses of
Gold Funds, they also bear the expenses of the underlying schemes in which the scheme makes investment.
Comparison among gold ETF, Gold fund, Jeweller and Bank:
Advantages of Gold ETF:

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Performance of Gold ETFs and Gold Funds:

Note: Trailing Returns up to 1 year are absolute and over 1 year are CAGR. NAV/index values are as on Dec 31, 2013.

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Asset growth (Rs Crs) of top traded gold ETFs over periods:

Asset growth (Rs Crs) of gold FoFs having largest AUM over periods:

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Interactive gold price chart (Spot Gold in INR & USD) in the last 3 years period:

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How ETF works?

Primary market

Secondary market

Seller

Cash
Authorized
Participants /
FI

Buy / sell

Market making /
Arbitrage
Redemption
in-kind

Creation
in-kind
Fund

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ETF Units

Stock Exchange

Cash

ETF Units

Buyer

20


Gold ETFs Mechanism:

Authorized participants: The fund house appoints market makers in the stock market to execute all the
transactions on behalf of the fund house. The market-makers, also called as arbitrageurs or Authorized Participants
(APs) act as intermediaries between retail investors and the gold ETF sponsor through the exchange. Authorized
participants get creation units from the gold ETF sponsor in exchange of physical gold. Creation unit usually
comprises of 1000 grams of physical gold. Authorized participants then take care of creating the market by
supplying gold ETF units as per the demand. A gold ETF unit usually represents either 1 gram of gold or half gram of
gold so that small investors can buy.
Custodians: The gold ETF sponsor arranges for safe custody of the physical gold. Usually, specialists called
custodians do this job for sponsors for a fee. The gold ETF sponsor is responsible for quality of gold, safety of gold.
The gold ETF sponsor takes adequate insurance for physical gold. The gold ETF sponsor can also invest in money
market instruments upto the percentage mentioned in the offer document. Bank of Nova Scotia, Scotia Macotta
and Deutsche Bank AG are some of custodians of the Indian Gold ETFs.
Arbitrage opportunity: Since the price of gold ETFs is driven by market forces (demand and supply), usually they
trade at a premium or discount to their NAVs (net asset values). The role of the fund houses is to keep the market
price of the gold ETF close to its NAV with the help of Authorized Participants. The Authorized Participants take
advantage of any significant premium or discount between the gold ETF market price and its NAV by doing
arbitrage between the gold ETF and its underlying index.
When an ETF is trading at a discount to its NAV, then the Authorized Participants will buy gold ETF units and then
sell the same to the AMC (in creation units); after taking delivery of the underlying stocks, the Authorized
Participants will sell the same in the markets, thereby benefiting from the arbitrage opportunity. The converse will
be done when an ETF is trading at a premium to its NAV. The arbitrage mechanism ensures that there is no
significant premium or discount to the NAV. At the same time, additional demand/supply is absorbed due to the
action of the Authorized Participants.

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Who will guarantee the purity bought? The authorised custodian (safe keeper) sources gold from LBMA (London
Bullion Market Association) approved refiners on behalf of investors. The amount of physical gold held by the
custodians in all schemes is of fitness (purity) of 99 part per 1000. (i.e, 99.5% pure). The gold held with the
custodian is fully insured.
Tracking Error:
Investors in an ETF buy or sell a security representing shares in the underlying index fund. They do expect the price
of the ETF to closely track the value of the underlying Index. The Schemes’ returns may deviate from those of their
respective underlying indices. The measure to calculate the deviation is called as Tracking Error. Tracking Error is
defined as the standard deviation of the difference between daily returns of the underlying index and the NAV of
the respective Schemes. For example, a tracking error of 1% implies that if the index return is 10%, the ETF return
should be 9%-11% about 68% of the time.
Tracking Error may arise due to the following reasons; Expenditure incurred by the Fund, Available funds may not
be invested at all times as the Scheme may keep a portion of the funds in cash to meet Redemptions, for corporate
actions or otherwise, Rounding-off of the quantity of shares in the underlying index, Regulations and internal
policies and indirect taxes and etc.
Bid ask Spread: An ideal gold ETF has a low bid/ask spread. ‘Bid’ means the investor should know the price at which
he can buy units and ‘ask’ means he should know the price at which he can sell units. The difference between bid
and ask should be very little, in an ETF.
Tax implications on Gold ETFs:

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Discount (+) / Premium (-) of Close Price of Gold ETFs to their NAV:
As the ETFs are passively managed investments, the prices of gold ETFs must theoretically move in tandem with the
price of physical gold. When the price of gold moves up, the value of ETFs appreciates and vice versa.
It is worth noting that like all traded instruments, the traded price of the ETF is influenced by demand and supply
dynamics, and therefore is often different from the NAV of the ETF.
The NAV of the ETF reflects the end of day value of the units based on the holdings of the ETF reflecting the price of
gold, after charging expenses for fund management.
Quite often, the traded prices of the ETF are quite different from the NAV due to low trades and other factors. In
some cases, the traded price of the ETF may be lesser than the NAV of the ETF (discount of close price to the NAV).
That means that a selling trade made on such a day will lead to losses for the investor.
When the traded price is more than the NAV (premium of Close price to the NAV), it means that the unit holder is
getting a price for his units in excess of the actual value of investment.
So any buying on exchange will lead to loss to the investor. This can happen if the demand for units is very high.
Usually a large difference in the price of the traded price and NAV corrects itself over time, offering an arbitrage
opportunity by the market makers.
Even as Gold ETFs hold the promise of providing instant liquidity during trading hours, the poor trading volumes
across some of the ETFs act as a deterrent to such liquidity.
Investors have to be careful on this, however one can not notice such mispricing during the market hours as the
NAV of the day is disclosed post market hours.
The below table lists out the average, minimum and maximum of the premium or discount of the spot price to their
NAVs in the last one year period.

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Discount (+) / Premium (-) of Close Price of Gold ETFs to their NAVs in the last one year period:

The below distribution charts portray the range of mispricing (market price vs NAV) on number of days within the
last year (250 trading days) for the top performing Gold ETFs.
Gold BeES:

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Kotak Gold ETF:

Reliance Gold ETF:

SBI Gold ETS:

HDFC Gold ETF:

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Relationship between NAV, Closing price of ETF on NSE and MCX Spot Price as on Dec 31, 2013:

Why NAVs of Gold ETF from different sponsors are different? Why do Gold ETFs quote at a discount to spot gold
price? One of the probable reasons of the difference seen among the NAVs of Gold ETFs at any given day is that
they were launched in the different periods. The issue price for per unit is fixed during NFO period based on the
spot price of one gram of gold prevailing on the date of allotment (this date generally falls in 15 to 30 days after the
NFO is over). NAVs of such funds appreciate or depreciate by tracking closely the underlying benchmark of price of
physical gold in the conventional market place. As the investment style is passive in nature, the returns are more or
less similar to that of physical gold.
Importantly, the ETFs do invest a very small part of their corpus in short term debt instruments such as call money
and keep it as cash equivalent to maintain liquidity.

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Further, all AMCs charge expenses to the schemes. Such expenses are up to 1.50% per annum. As Gold ETFs are not
allowed to earn money by pledging/loaning the Gold, they are unable to recover the expenses from any source.
Hence as years pass by the NAVs of ETF will dip by the expenses charged to the scheme and get further away from
the spot price of gold.
However for a new investor it does not make a difference as to whether he invests in scheme A at a higher NAV of
scheme B at a lower NAV. He will typically participate in the upside/downside (in % terms) in line with the price of
gold.

Analyst: Dhuraivel Gunasekaran (dhuraivel.gunasekaran@hdfcsec.com)

(Database sources: Gold.org, AMC Sites, NAVIndia & Ace MF)

HDFC Securities Limited, I Think Techno Campus, Bulding –B, ”Alpha”, Office Floor 8, Near Kanjurmarg Station,
Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone (022) 30753400 Fax: (022) 30753435
Disclaimer: Mutual Fund investments are subject to risk. Past performance is no guarantee for future performance. This document has been prepared by
HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made
available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from
sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time
positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other
services for, any company mentioned in this document. This report is intended for non-Institutional Clients.

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Hdfc sec - Gold ETF and Gold Funds - a review as on Jan 22, 2014

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