E-gold or gold witch is better
42% was the one-year (August 2010-August 2011)
return delivered by e-gold compared with 40% for gold ETFs. While the marginal
difference in returns can be attributed to the cost-effectiveness of e-gold,
both these avenues provide ease of investing by allowing people to hold gold in
the demat form. However, each product has its pros and cons—while gold ETF is a
more tax-efficient means of investing, e-gold offers the option of physical
delivery. This is perhaps the reason experts remain divided on which route makes
for better investment, finds out ET. Based on their opinion and depending on
your individual needs, find out whether you should go for e-gold or gold ETF
The biggest advantage that investing in e-gold has over gold ETF is that it
involves no management costs or other recurring expenses. So the product is a
lot more cost-effective for people who have a long investment horizon.
The only charges involved are a one-time transaction fee of 2-3 paisa per
gram and a brokerage fee of 0.2-0.3%. Both these charges are also levied in case
of gold ETFs, but are much higher. E-gold can be converted into physical gold
for quantities as small as 8 gm, while gold ETFs offer the option of physical
delivery but only for a denomination of over a kilogram. Accumulating such a
huge amount of gold is not feasible for small investors.
Besides, the delivery centres of the National Spot Exchange are located in 15
cities, while ETFs have only one delivery centre in Mumbai. E-gold can also be
directly converted into jewellery through select, reputed jewellers that conform
with the purity and transparency guidelines. The investor only has to pay for
the making charges. The National Spot Exchange aims to bring all branded
jewellers under its umbrella of empanelled jewellers within a year.
The liquidity in e-gold is also increasing phenomenally, with the current
average daily turnover being Rs 200-250 crore compared with Rs 15-20 crore in
case of gold ETFs. Liquidity is of utmost importance for a retail investor as it
makes buying and selling more efficient by reducing the impact cost (which is
the bid-ask spread). The impact cost for e-gold is only 10-15 paise, as opposed
to Rs 4-5 in gold ETFs.
Naveen Mathur, Associate Director,
Commodities, Angel Broking
E-GOLD
E-gold wins hands down against gold ETF. In India, the rural community and
the middle-to low-income group have a tendency to flock to gold. For the typical
Indian investor, e-gold is more suitable as it provides the option of delivering
the yellow metal and, hence, bridges the gap between using it for investment and
the traditional, auspicious reasons for buying it.
Unlike in gold ETFs, where prices are measured in terms of the net asset
value, it is simple to understand e-gold because of the transparency in pricing.
A small investor, who wants to accumulate gold for his daughter's wedding or a
festival, can easily do so through planned, monthly or weekly investment in
e-gold. In this manner, he can also guard his investment against price
volatility. E-gold has also been providing better returns than gold ETFs.
The primary reason for the differential is that in the case of investing in
gold ETFs, there is a range of charges, such as management and advisory fees,
marketing and distribution expenses, custodian charges and other operational
expenses. The expense ratio of gold ETFs is around 1%. Apart from the charges,
tracking error also brings down the returns of gold ETF's a little bit.
