goldbees religare uti gold Gold ETFS Vs BSE Sensex During Jan 2008 Market Fall

About Gold ETFs

What are gold ETFs? Taxation implications of gold ETFs Some observations on gold ETFs Performance of gold ETFs in January stock market fall iTrust observations o 0ld ETFs as a secure asset class o During negative sentiments in the market, gold is a secure asset class.

Definition

Investors can buy and sell the units of Gold ETF (Exchange Traded Funds) directly on the stock exchange through a SEBI registered broker. Gold ETFs give an opportunity to investor to invest in standard gold bullion (0.995 purity) neither taking the physical delivery of gold nor compromising with its quality.

Difference between Gold ETFs and physical gold

Parameter Holding Transparency Pricing Sale Wealth Tax Gold ETFs Dematerialized Form Very High Will be traded at NSE/BSE, so, transparent Can be done on the exchange itself No Physical Gold Coin, bar etc. Very Low Not Transparent Based on set of conditions Yes

Short Term If sold before 1 year Capital Gain Tax Impurity Risk Nil

If sold before 3 years High

Benefits of Gold ETFs over Physical Gold

No risk of storing the investment and its security Higher liquidity and easy to buy or sell

Taxation Implications of Gold ETFs

ETFs are taxed on the same lines as of debt mutual funds. Following is the taxation slab: Category Individual Corporate NRI Short Term Long Term Dividend Capital Gain Capital Gain Distribution Tax Tax Tax As per income 10% or 20% 14.16% tax slabs with indexation 10% or 20% 30% 22.66% with indexation As per income 10% or 20% 14.16% tax slabs with indexation Security Transaction Tax 0.125% at redemption 0.125% at redemption 0.125% at redemption

Observations about Gold ETFs - 1

Based on the above chart, we can make the following observations:

Gold ETFs in India have performed exceptionally well when the market has fallen as shown by the green line (an over performance of 15.52% in 3 months). However, Gold ETFs in India tend to under perform the Sensex ( 9.18% in 1 month) during the bull run in the stock market. (In India, gold ETFs are recently launched. Therefore, up to 6 months performance is compared.)

Observations about Gold ETFs - 2

Over the period of 6 months (2nd August 2007 - 5th February 2008) Asset Class 5th February 2008 Equity (Sensex) Rs 100,000 Rs 124,540 Gold (Gold ETFs) Rs 100,000 Rs 129,920 Absolute Out performance (Gold ETFs over Sensex) 2nd August 2007 Absolute Gain Rs 24,540 Rs 29,920 Rs 5,380 % Gain 24.54% 29.92% 5.38%

Therefore, following are the important points:

Gold proves out to be a secure asset class at the time of market downfall In last 6 months, though the market moved northwards most of the time, a steep fall in January pulled down the aggregate returns with a higher percentage. An investor would have gained Rs 5380 more if invested in Gold ETFs and not in Sensex. This is due to exceptionally good performance of Gold ETFs in India in Jan 08 even though this asset class was under performing during Oct-Dec 07

Facts about Gold ETFs During the Jan 08 market fall

During the market fall last month, the indices (Sensex and Nifty) have seen a steep fall of approx. (-9.78%) and (-12.60%). Following this fall, equity diversified funds have also seen a downtrend of around (-15.67%) on an average. Contrary to this, Gold ETFs have delivered positive returns and also over performed the equity indices . Gold ETFs have returned approx. 3.77% in the month of January when the markets have shown negative sentiments.

iTrust Observations

Gold ETF is an advisable asset class that can be a part of investor's portfolio to add to the diversification. These are low cost instruments and highly transparent. Specially with the negative sentiments in today's market, gold is a secure asset class. This asset class can bring stability and security in a well diversified portfolio.