Invest in China with just Rs 10,000 with Hang Seng BeEs ETF

After the mad rush for Gold ETF Asset Management companies were actively scouting go the next big idea to launch to seek cover for their dwindling Assets Under Management(AUM). Accordingly, Benchmark Mutual Fund will be launching an ETF based on the Hang Seng Index. Hang Seng BeEs as it is called would be listed on the NSE on Monday , 15th February. The Purpose of this EFT is to enable investors track Hang Seng Live and reveal hang seng index chart on real-time basis.

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Benchmark AMC and its Niche:

Benchmark has carved a niche for itself in the Indian Mutual Fund Industry by successfully launching first ETF in Asia(not only India) Nifty BeEs. It is also credited with launching the Gold ETF first time in India. Shariah based ETF products were first introduced to the Indian Mutual Fund Investors by Benchmark Asset Management Company.

Trade on Hang Seng Stock Exchange:

Hang Seng BeEs would be the first ETF to introduce Indian Stock Market Investors to a closed market like China. India and China are two of the fastest growing economies in the world. Indian investors would largely benefit by the diversification offered with the launch of hang seng index based ETF. Hang Seng Stock Exchange is one of the largest exchanges in the world. Hang Seng Index Charts, Hang Seng Futures, Hang Seng Historical Data can also be now be determined and tracked on a real-time basis.

Hang Seng Timings:

Hang Seng BEnchmark Exchange traded Scheme(BeEs) will trade during the Hong Stock Exchange Timings. The Heng Seng Stock Exchange closes two and half hours prior to the NSE Closing timings. The corresponding time would be between 7.30 am to 1.30 pm Indian Standard Time. The timings are better suited to Indian Stock Market traders and investors alike, compared to US Markets and European market timings. The NAV for the Scheme would also include the currency fluctuation.

Taxation Rules for Trading in Foreign ETF:

The ETF are treated as Debt funds for tax treatment and would therefore attract tax rules which are currently applicable to the non-equity funds in India. The Hang Seng Index currently comprises of 42 Stocks and is the benchmark for the China ETF in India. Rs 10,000 is all you need for your ticket to China: The units are available for a minimum amount of just Rs 10,000. To cater to large masses and enable wider market participation the entry amount is kept at Rs 10000 only. All Major Global Corporations have invested billions of dollars in the Chinese Economy. So why Indian Investor should not join the race and participate to diversify their existing portfolios?

Charges for trading on China ETF:

There are no charges levied by the AMC in form of NIL entry load and NIL exit load for buying and selling on the NSE. A minor bid/ask spread, brokerage for trading and needs to be borne by the investor. Hitherto, only High Net worth Individuals was active in using these innovative financial products. In future retail investors should add such products to their overall portfolio diversification strategy.

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Gold ETF beats it all …Again(October Review)

A Review of performance of GOLD ETF based on earlier post Gold ETF beats it all

Gold Exchange Traded funds have performed exceptionally well since their inception in India. One of the primary reasons attributed to it could be inherent bias of Indians towards gold as a precious metal. However, recently Gold is receiving a fair share for investment purposes as well. In times of economic and financial turmoil it is a safe heaven for many.

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Gold EFT’s which are primarily traded on NSE (see codes) have outperformed many local and International equity indices(BSE, NIFTY, Dow Jones, Nikkei, Hang Seng).
At a time when equities valuations around the world were getting beaten down Gold ETF has provided investors promising returns of more than 15%. Comparing this returns to double digit negative returns of equity indices, surely makes a case for many investors to diversify their existing portfolios and include any of the available Gold ETF’s (BeEs, Kotak, Quantum, Reliance, and UTI)

Listed below is a comparison of returns of Gold ETF with various indices around the world. The NAV for 29-Oct-2008 is considered for comparison. Some data is proportionately adjusted for comparative study.

Scheme Name 1 mth % 3 mths % 6 mths % 1 yr % 3 yrs % NAV Category Structure
UTI Gold ETF (10.52) (8.45) 1.19 16.39 NA 1164.88 ETF Open Ended
Gold BeES (10.51) (8.46) 1.18 16.32 NA 1162.31 ETF Open Ended
Kotak Gold ETF (10.52) (8.44) 1.15 16.29 NA 1165.41 ETF Open Ended
Quantum Gold Fund – Growth (10.51) (8.35) 1.31 NA NA 580.25 ETF Open Ended
Reliance Gold ETF – Dividend (11.07) (9.48) (0.01) NA NA 1136.79 ETF Open Ended
Average performance of similar category funds (10.63) (8.64) 0.96 16.33 NA 1041.93
S&P Nifty (32.64) (38.03) (47.25) (52.63) 5.04
BSE Sensex (31.25) (37.22) (47.06) (52.90) 5.43
Nasdaq (7.32) (5.95) 0.78 (12.73) 1.18
FTSE (2.13) (6.46) (6.23) (14.07) 0.26
Dow Jones (1.89) (5.93) (5.68) (14.03) 2.25
Strait Times (8.74) (14.88) (11.90) (26.62) 3.40
KLSE (6.68) (14.81) (15.30) (18.77) 4.34
HangSeng (8.80) (12.73) (11.21) (8.07) 12.00
Kospi (8.36) (17.24) (12.81) (16.68) 11.10
MSCI World Index 7.41 2.33 8.16 18.73 16.22
Nikkei (6.06) (6.66) (7.57) (21.20) 0.90
*Note:- Returns calculated for less than 1 year are Absolute returns and returns calculated for more than 1 year are compounded annualized.

Golden Quotes:

James Grant : “Nothing beats a little cash in a bear market and the oldest form of cash is gold.”

Karl Marx : “Although gold and silver are not by nature money, money is by nature gold and silver.”

At the end of the day, bullion is more important than the billion.

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How to buy Gold ETF?

How to buy Gold ETF?

Listed below is a simple way to own a Gold ETF.

Gold EFT are fast becoming a rage in India. One reason attributed to its popularity could be its stellar performance in a relatively subdued market conditions.

When first introduced in India, many were skeptical about its relevance and suitability in Indian markets, however increasing volumes and new scheme launches(Quantum, SBI) indicate its growing acceptance in a naive market like India. It is a complex financial instrument. (read EFT F.A.Q).It involves many different entities apart from usual fund managers who manage the scheme. However, its has its own limitations since it is listed on exchanges.

Many people are unaware of ways to buy a GOLD ETF.

You need a Demat account along with broker who is a member of NSE to buy a Gold ETF.

Some of the popular brokerage firms like ICICI Direct, HDFC Securities, KOTAK Securities.

Along with traditional brokerage firms like India Infoline, Geojit, IndiaBulls, Sharekhan also offer a demat account with brokerage facilities.

Once you have a brokerage account you can buy Gold ETF by placing an order like a normal stock order to buy listed Gold ETF. Most of the ETF are listed only on NSE. Unfortunately, BSE does not have any Gold ETF listed on it.

Additionally codes like be required to be inputted to buy it online or through telephone, as many brokerage firm’s customer care executives are unaware of the codes.

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Benchmark Mutual Fund – Gold Benchmark Exchange Traded Scheme (NSE Symbol: GOLDBEES)

See today’s price Nav of Kotak Mutual Fund – Gold Exchange Traded Fund (NSE Symbol: KOTAKGOLD)(See price chart)

See today’s price Nav of UTI Mutual Fund – UTI Gold Exchange Traded Fund (NSE Symbol: GOLDSHARE)

See today’s price Nav of Reliance Mutual Fund – Gold Exchange Traded Fund (NSE Symbol: RELGOLD)(See price chart)

Quantum Gold Fund – Exchange Traded Fund (ETF) (NSE Symbol: QGOLDHALF)

Interesingly, Quantum Gold is also available for 0.5 grams(1/2 gram) of gold. Now that’s truly a product for the masses since the pricing is half of other available Gold ETF.

Apart from Gold ETF, some other mutual funds are also available which invest in different gold mining companies and international gold funds as well.

Funds like DSP ML World Gold and AIG Gold Fund have also fared better than indicative markets indices.

Since these funds(DSP World Gold, AIG Gold) are not ETF’s, no demat account is required and can be purchased like any other mutual fund schemes.

Update: January, 07, 2009.
Now Kotak Securites has launched a facility where investors can invest in Gold ETF on a regular basis.
These facility in similar to SIP in GOLD ETF, or GOLD ETF SIP.
Kindly comment in case any other brokerage has similar facility.

Kotak Gold ETF Price movement chart.

Kotak Gold ETF Price movement chart.
Below is the price movement chart for Kotak Gold ETF since 01-Jan-2008 till 28-May-2008. A trendline is also added to the chart for better understanding purpose.
The prices are the applicable NAV for corresponding period or dates.

Kotak Gold ETF Price movement chart

Kotak Gold ETF Price movement chart

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Reliance Gold ETF Price movement chart

Reliance Gold ETF Price movement chart.

Below is the price movement chart for Reliance Gold ETF since 01-Dec 2007 till 29-April-2008.

Price movement chart for Reliance Gold ETF

Price movement chart for Reliance Gold ETF

A trendline is also added to the chart for better understanding purpose.

The prices are the applicable NAV for corresponding period or dates.

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F.A.Q’s ETF (PART 3)

ETFs are different from Mutual funds in the sense that ETF units are not sold to the public for cash. Instead, the Asset Management Company that sponsors the ETF (Fund) takes the shares of companies comprising the index from various categories of investors like authorized participants, large investors and institutions. In turn, it issues them a large block of ETF units. Since dividend may have accumulated for the stocks at any point in time, a cash component to that extent is also taken from such investors. In other words, a large block of ETF units called a “Creation Unit” is exchanged for a “Portfolio Deposit” of stocks and “Cash Component”.

The number of outstanding ETF units is not limited, as with traditional mutual funds. It may increase if investors deposit shares to create ETF units; or it may reduce on a day if some ETF holders redeem their ETF units for the underlying shares. These transactions are conducted by sending creation / redemption instructions to the Fund. The Portfolio Deposit closely approximates the proportion of the stocks in the index together with a specified amount of Cash Component. This “in-kind” creation / redemption facility ensures that ETFs trade close to their fair value at any given time.

Some investors may prefer to hold the creation units in their portfolios. While others may break-up the creation units and sell on the exchanges, where individual investors may purchase them just like any other shares.

ETF units are continuously created and redeemed based on investor demand. Investors may use ETFs for investment, trading or arbitrage. The price of the ETF tracks the value of the underlying index. This provides an opportunity to investors to compare the value of underlying index against the price of the ETF units prevailing on the Exchange. If the value of the underlying index is higher than the price of the ETF, the investors may redeem the units to the Sponsor in exchange for the higher priced securities. Conversely, if the price of the underlying securities is lower than the ETF, the investors may create ETF units by depositing the lower-priced securities. This arbitrage mechanism eliminates the problem associated with closed-end mutual funds viz. the premium or discount to the NAV.

F.A.Q’s ETF (PART 2)

Exchange Traded Funds (ETF) and its advantages:

Advantages of ETFs

While many investors have similar outlooks, no two are exactly alike. Due to the unique structure of ETFs, all types of investors, whether retail or institutional, long-term or short-term, can use it to their advantage without being at a disadvantage to others. They allow long-term investors to diversify their portfolio at one shot at low cost and insulate them from short-term trading activity due to the unique “in-kind” creation / redemption process. They provide liquidity for investors with a shorter-term horizon as they can trade intra-day and can have quotes near NAV during the course of trading day. As initial investment is low, retail investors find it simple and convenient to buy / sell. They facilitate FIIs, Institutions and Mutual Funds to have easy asset allocation, hedging, equitising cash at a low cost. They enable arbitrageurs to carry out arbitrage between the Cash and the Futures markets at low impact cost.

ETFs provide exposure to an index or a basket of securities that trade on the exchange like a single stock. They offer a number of advantages over traditional open-ended index funds as follows :

* While redemptions of Index fund units takes place at a fixed NAV price (usually end of day), ETFs offer the convenience of intra-day purchase and sale on the Exchange, to take advantage of the prevailing price, which is close to the actual NAV of the scheme at any point in time.

* They provide investors a fund that closely tracks the performance of an index throughout the day with the ability to buy/sell at any time, whereby trading opportunities that arise during a day may be better utilized.

* They are low cost.

* Unlike listed closed-ended funds, which trade at substantial premia or more frequently at discounts to NAV, ETFs are structured in a manner which allows Authorized Participants and Large Institutions to create new units and redeem outstanding units directly with the fund, thereby ensuring that ETFs trade close to their actual NAVs.

* ETFs are like any other index fund, wherein, subscription / redemption of units work on the concept of exchange with underlying securities instead of cash (for large deals).

* Since an ETF is listed on an Exchange, costs of distribution are much lower and the reach is wider. These savings in cost are passed on to the investors in the form of lower costs. Further, the structure helps reduce collection, disbursement and other processing charges.

* ETFs protect long-term investors from inflows and outflows of short-term investors. This is because the fund does not incur extra transaction cost for buying/selling the index shares due to frequent subscriptions and redemptions.

* Tracking error, which is divergence between the NAV of the ETF and the underlying Index, is generally observed to be low as compared to a normal index fund due to lower expenses and the unique in-kind creation / redemption process.

* ETFs are highly flexible and can be used as a tool for gaining instant exposure to the equity markets, equitising cash or for arbitraging between the cash and futures market.

The first ETF in India, “Nifty BeEs (Nifty Benchmark Exchange Traded Scheme) based on S&P CNX Nifty, was launched in January 2002 by Benchmark Mutual Fund. It may be bought and sold like any other stock on NSE. Its symbol on NSE is “NIFTYBEES”.