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Want to invest in gold? Try gold fund

Last updated on: August 27, 2010 17:02 IST

Want to invest in gold? Try gold fund

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Balwant Jain, CFO, Apnapaisa

Many readers have been requesting to know from where and how they can go about investing in gold exchange traded funds, ETFs. Indeed it speaks volumes about the love for gold we Indians have!

If you are one of those, I hope this piece of information will be of great help. So for the beginners, this is a step-by-step process.

First and foremost you will need to open a demat account with a depository participant before opening an account with a broker. Brokers normally insist on opening a demat account before you can open a trading account with them. In case you already have these then you can start buying gold ETFs right away after reading the article.

A demat account is like a saving account of securities where you can electronically deposit or withdraw your shares like your money in savings account.  When you buy any share, these are credited to your demat account by your broker. There are broking companies which provide demat services also. Therefore you can open the share trading account with one such brokerage houses. You can have more than one demat account as well as share trading account.

Apnapaisa is a price comparison engine that allows consumers in India [ Images ] the ability to compare the EMI, interest rates and other fees for home loans, car loans, personal loans, business loans, credit cards, compare online quotes and features of life insurance, health insurance, car insurance, travel insurance and other general insurance policies in India.


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For opening a demat account, a valid PAN number and an operative bank account is mandatory besides documents for your address proof like ration card, driving license, voter ID card, rent/purchase agreement in respect of the property or latest insurance policy status for a live insurance policy are required.

You can also provide documents like electricity bill, bank statement, telephone bill or bank for the purpose.

In case your broker also offers demat services known as depositories services, then demat and share account are opened simultaneously.

However in case you have opened your demat account with depository like Stock Holding Corporation Limited, you need to open an account with a share broker, which is popularly known as trading account, for the purpose of buying the gold ETF.

The documents required for the purpose of opening the share trading account are almost the same as required for opening a demat account. Let me tell you that for buying or selling gold ETF units you do not have to open a new demat or share trading account.

For purchasing and selling gold ETF you may call up your broker and place the order. Some brokers allow you to trade online also.

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The scrip name with underlying gold quantity and exchange code of major schemes of gold ETF on the Bombay Stock Exchange are given below as a ready reference for the people who buy stocks online and for others to convey to their brokers what they want to buy specifically:

These units are traded on stock exchanges and cannot be purchased from mutual funds. Here you cannot set up a SIP (systematic investment plan) in its traditional way.  But you can set the target of quantity of gold to be bought in a year and accordingly decide to buy the quantity spread over the year evenly. This will help you in absorbing the volatility in the price of gold.

Suppose you want to accumulate 10 grams of gold every month, you can plan to buy gold ETF on alternate day of one unit or alternatively one unit of quantum for each day when the stock exchange is open as the market is on average open for 20 days a month and if you buy one unit of Quantum Gold Fund ETF on every day or one unit of any other Gold ETF on every alternate day.

Except for the ETF of Quantum Mutual Fund which has a quantity of half gram against each unit all others have one gram of gold underlying each unit of gold ETF.

Based on your target quantity of gold required in future, you can set the quantity and frequency of units to be purchased.



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To give effect to the above plan, you can instruct your broker to buy the Gold ETF on the days fixed in advance. It will help if you set up your personal reminder for purchase of gold ETF on fixed days. Some of the online trading sites allow you to set up for auto purchase of shares. This arrangement will bring in financial discipline in those of who are careless about their money as they have to honour the cheques for payment of gold ETF regularly and religiously.

As you are planning to purchase the gold ETF on regular basis and the payment of money has to be made within three days normally, making of payment involves some logistics difficulty in arranging for payment frequently. In such cases where the payment of the purchase amount is automatically debited in the bank, like online broking companies affiliated or floated by bank does not pose major logistics problem.

However in cases where the bank account and broking account is not linked, you can solve this difficulty by handing over a few cheques periodically. Do not forget to make the cheques for not above a particular amount, which you think can be maximum payable in respect of purchase of gold ETF during the relevant period. However please ensure that you maintain adequate balance in your bank account during currency of the self devised gold ETF.

So if you follow the SIP way, you can be a proud owner of gold over a period of time.



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