POSTED BY August 25, 2011 5:52 pm COMMENTS (62)ON
I have a question about gold investing. I want to know that which is better – Gold ETF or a Physical Gold?
I know the all the advantages of gold etfs like – purity, insurance, safety, no wealth tax…etc…
But what I can’t understand about Gold ETFs is – its annual expense ratio.
Here are my Questions
1) Can Anyone tell me that how exactly they count the expense ratio? Suppose if one ETF has 1% annual expense ratio than weather it is 1% on gold or 1% on price?
I am asking this question because in case of SBI gold deposit schemes suppose if we invest 500 grams of gold than they give us 1% interest per annum. And this interest is on gold and not on its price. So if I put my 500 gram of gold with SBI gold deposit scheme than I will earn 1% on 500 Grams per year which is 5 Grams per year.
So What I want to ask is, suppose if ETFs charge 1% from me than will they charge 1% gold or 1% of price?
2) Suppose if they charge 1% on gold than won’t it hurt my gold? As people say that 1 unit tracks the price of approx 1 Gram of physical gold. So suppose if today I buy 100 units of Gold ETF than it means that today I have 100 Gram of Physical gold right?
Now, after 1 year suppose if they charge from me 1% and deduct 1 unit than it means that they have charge me 1 Gram of Physical gold to put 100 Gram of gold with them so now I have 99 Grams gold only and next year they will charge 1% of this 99 Gram gold means 0.99 Grams and this cycle will keep going on.
3) Now, suppose Today I have 2.8 Lakh rupees and I have a bank locker with me and I also don’t have any purity issue than why should not I buy the physical gold of 100 Gram and put it in a bank locker. In this way,
– I won’t have any safety issue
– I already told that I can manage purity issue by myself
– 2.8 Lakh worth of gold won’t even attract a wealth tax
– And I really don’t need insurance for it.
So ultimately the question is that,
Why can’t I go for physical gold rather than Gold ETFs?
It seems that its profitable to become an owner of a Gold ETF Scheme because you will have a steady cashflow of 1% of its gold every year no matter weather the gold price goes up or down?
So Kindly solve my this query.
Thank you in Advance.