Nippon India Gold ETF and Gold Savings Fund

We are in the middle of the festive season and this time of the year, as per Indian cultural tradition, is auspicious for buying Gold. Gold is also seen as an important asset class from an investment viewpoint. Long term growth in Gold value makes it a hedge against inflation. Gold is also a risk diversification tool from an asset allocation standpoint since Gold usually has inverse correlation with equities. In the current environment, where the market is overbought and looks frothy, it makes sense to invest in Gold. This Diwali, invest in Gold not only for auspicious purposes for also for financial reasons. In this article, we will discuss how you can use exchange traded funds and gold fund of funds, to invest in gold.

Investments benefits of Gold

• Gold, as an asset class, is often counter-cyclical to equities. Gold outperforms when equity underperforms and vice versa. Gold provides risk diversification in your investment portfolio


• Gold is also seen as a long term hedge against inflation. Over long investment tenures gold has historically given inflation beating returns.


• You can benefit from the depreciation in Indian Rupee by investing in Gold.


• Historically, Gold as an asset class, has given attractive returns over long investment tenures. In the last 20 years ending 30th September 2021, Gold has given 11.78% CAGR returns, which is significantly higher than returns from traditional fixed income investments.

Gold prices are rallying in international markets

Gold prices in the global markets have been rallying since the beginning of this month. In the last 30 days (ending 21^st October 2021) gold prices per ounce in US Dollars (USD) have rallied by 2.25%. (Source: Bloomberg). Coupled with the INR depreciation versus the USD, gold prices have rallied by 3.16% (Source: Goldprice.org). The rally can be attributed to persistent and rising global inflation. The looming tapering of the US Fed stimulus is also a contributing factor. As mentioned, the wedding season is approaching in India and we may see further rise in gold prices in our country.

How to invest in Gold?

Though physical gold, especially in the form jewellery is the traditional way of buying Gold, investment experts recommend Gold as a financial asset for investment purposes. There are a number of benefits of investing in Gold as a financial asset rather than physical asset:-

• Gold in the form of jewellery has impurities, which will get deducted from the value of Gold if you are selling or remaking your gold jewellery.


• Gold jewellery cost includes making charges. Fashion changes over time and you may have the remake the jewellery again, if you plan to gift to your children or their spouses in the future. If you are buying Gold for the purpose of your child’s marriage, it is better to buy it as a financial asset, so that you can avoid double making charges and impurities.


• Gold in physical form involves storage charges i.e. bank locker charges. Gold in financial form does not require separate storage costs.

You can invest in Gold in the financial form by investing in Gold ETFs or Gold Fund of Funds. In this article we will discuss about Nippon India ETF Gold BeESand Nippon India Gold Savings Funds which are Gold ETF and Gold Fund of Funds respectively.

Nippon India ETF Gold BeES

Gold exchange-traded fund (or Gold ETF) is an exchange-traded fund (ETF) that aims to closely track the price of gold. Unlike gold jewellery which invariably has impurities Gold ETF units represent the value of pure 24 carat gold. The units of the gold ETFs are traded on the stock exchange just like shares of a company. There are a number of gold ETFs listed on the stock exchanges. To buy and sell gold ETFs on the stock exchange you need to have demat and trading accounts. Nippon India ETF Gold BeES is a Gold ETF. It aims to track the domestic price of Gold. The ETF has more than Rs 6,000 crores of assets under management (AUM).

Why invest inNippon India ETF Gold BeES?

• Low cost: The total expense ratio (TER) of the ETF is 0.79% only. Lower the cost, lower is the tracking error i.e. the difference in Net Asset Value (NAV) of the ETF and actual Gold Price.


• Invest with a small amount: Buying gold jewellery usually involves considerable cost. However, you can invest in gold with a small amount by investing in Nippon India ETF Gold BeES. If you are investing in ETFs through stock exchange, the minimum investment amount is the cost of 1 unit. The NAV of Nippon India ETF Gold BeES is Rs 41.2 (as on 21^st October 2021). If you want to invest in Gold for your children’s marriage you do not have save a large amount of money for buying jewellery. Simply, keep buying gold ETF units are regular intervals from your regular savings over a long period of time.


• Liquidity: ETF units can only be sold in stock exchanges, unless you are transacting in lot sizes (creation unit size). Liquidity is a concern for ETF investors, since you need to find a buyer if you are selling in stock exchanges. The AUM size of an ETF is usually an indication of its liquidity. The Nippon India ETF Gold BeES has a large AUM (more than Rs 6,000 crores), highest among all Gold ETFs. It is one of the most liquid Gold ETFs in the market.


• Invest / redeem with the AMC in lot sizes: If you are transacting in lot sizes (creation unit size), then you can invest or redeem Nippon India ETF Gold BeES units directly with the AMC. The creation unit size of Nippon India ETF Gold BeES is 115,000 units of the ETF.

Nippon India Gold Savings Fund

As mentioned earlier, you need to have demat and trading account for investing in ETFs. If you do not have a demat account and do not want to setup one, simply for the purpose of buying Gold, you can invest in Gold fund of funds. Nippon India Gold Savings Fund is Gold fund of funds, which invests in Nippon India ETF Gold BeES. The scheme has Rs 1,362 crores of AUM. The expense ratio of the scheme is 0.42%.

Why invest inNippon India Gold Savings Fund?

• Low cost: The total expense ratio (TER) of the scheme is 0.42% only. Lower the cost, lower is the tracking error i.e. the difference in Net Asset Value (NAV) of the scheme and actual Gold Price.


• Invest with a small amount: The minimum investment amount for Nippon India Gold Savings Fund is just Rs 100 and multiples thereafter.


• Invest through SIP: If you want to invest in Gold for your children’s marriage you do not have save a large amount of money for buying jewellery. Simply, keep investing in Nippon India Gold Savings Fund from your regular savings over a long period of time through SIP.


• Invest / redeem with the AMC: The biggest advantage of a Gold Fund of Funds is that, you do not have to sell your units in the stocks exchange, where the market price may be different from the NAV. You can redeem your units of Nippon India Gold Savings Fund directly with the AMC.

Conclusion

Gold is an auspicious investment for many Indian families. You can invest in gold for purposes of asset allocation, children’s marriage or leaving an estate for your loved ones. Gold ETF is the cheapest and safest way of purchasing Gold. If you do not have a demat account and / or are not comfortable trading in stock exchanges, you can invest in Gold fund of funds. You should consult with your financial advisors if Nippon India ETF Gold BeES and Nippon India Gold Savings Fund are suitable for your Gold investing needs.