Gold ETFs are backed by physical gold & the custodians are monitored by RBI & SEBI…
31-Mar-2011 •Research Desk
I have made some investment in a Gold ETF and want to buy some more but considering all the scams in the financial world I am worried if there is enough regulatory governance on them and if they are really keeping equivalent physical gold with them. In case there is some major event where, for some reason, large number of investor want to sell their gold ETF, will I be able to sell them at similar market value as physical gold?
- Sushil Chopra
Your apprehensions and concerns are valid. However, Gold ETFs are backed fully by physical gold. The physical gold is kept in vaults of custodians who are regulated by SEBI and RBI. Gold ETFs, or paper gold, are mutual fund units which invest money in physical gold just the way equity mutual funds invest in equities. A typical gold ETF would invest up to 90-100 per cent in 99.5 per cent pure physical gold sourced from RBI approved banks and agencies, while the other 0-10 per cent is invested in debt instruments.
While you can expect a return from your Gold ETFs in line with prices of physical gold, you will not receive the exact market price when you are selling the Gold ETF units that you have. This is because of the expenses that you incur when investing in gold ETSs and which is why you should invest in gold ETF that has a lower expense ratio.