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Business News/ Money / Personal Finance/  NFO Review: Should you invest in the newly launched Edelweiss gold ETF? Here’s what experts say
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NFO Review: Should you invest in the newly launched Edelweiss gold ETF? Here’s what experts say

Gold ETFs can be a fine way to put money into gold investments depending on certain factors. There is a lot at stake though there are benefits too for investors looking to benefit from differences in gold prices over a period.

What are the pros and cons of investing in a newly launched gold ETF?Premium
What are the pros and cons of investing in a newly launched gold ETF?

The lure of the yellow metal can be unwavering. So much so that many investors ensure to make a significant allocation to gold investments. With the prices of gold constantly fluctuating and even touching a decent bottom in recent years, many investors have started investing in gold exchange-traded funds (gold ETFs)

For the unversed, gold ETFs have gained widespread popularity as a means of gold investment that eliminates the need to acquire and safeguard the actual precious metal. These financial instruments are listed and traded on prominent stock exchanges, similar to stocks, and provide several benefits compared to owning physical gold, such as

Fractional ownership: Gold ETFs enable you to invest in modest quantities of gold, rendering them a more cost-effective option than acquiring physical gold.

Transparency: The gold ETF values are closely linked to the live market price of gold, ensuring constant awareness of the current value of your investment.

Liquidity: Gold ETFs are actively traded on prominent stock exchanges, providing convenient accessibility for buying and selling at your discretion.

Diversification: Gold ETFs can serve as a valuable tool for portfolio diversification since they often exhibit distinct movement patterns compared to stocks and bonds.

Many mutual fund companies have come out with gold ETFs in India in the past, though the focus on investing in gold ETFs has resurged with the recent launch of the Edelweiss Gold ETF on November 02, 2023. As per the Scheme Information Document (SID) launched by the Edelweiss mutual fund house, interested investors can engage in the sale and repurchase of ETFs after November 10, 2023.

Is this the right time to invest in gold?

Ask the aged and the old in your house, and you will find most of them happily vouching for gold investments citing how the price of this yellow metal has only gone up despite frequent and recurring market downturns. For instance, consider the initial offering price of the inaugural Sovereign Gold Bonds (SGBs) issued in November 2015, which was set at 2,684 per gram of gold. The recent redemption price has been set at 6,116 per gram of gold, thus, highlighting the steep rate at which the prices of gold have gone up in recent years. 

As Gaurav Goel, Founder – Director, Fynocrat Technologies shares, “Anytime is a good time to invest in gold especially in a systematic mode as gold can serve as a hedge against economic uncertainty and inflation, making it a valuable long-term investment. Gold can be a valuable component of a diversified investment portfolio. Before investing in gold, one should consider his investment horizon. Gold prices can be volatile in the short term, so if you’re looking for quick profits, it may not be the best option. However, it has a lot of value over the long term."

Chintan Haria, Head-Investment Strategy, ICICI Prudential AMC said, “For hundreds of years, gold has been used as a store of wealth and is among the oldest asset classes known to exist. For all investors, gold is the ideal haven, inflation hedge, and portfolio diversification tool at a time of severe inflation, a global downturn, and a loss of faith in fiat currencies. Several central banks, including those in China and India, are adding gold to their reserves."

Personal financial experts do not just go by their gut feeling. They explain their appreciation for a certain investment based on certain factors including surrounding geopolitical relations and economic conditions stemming from the same. 

Naimisha Rao, Co-founder, Gullak Money said, “Amidst the rising tensions in the Middle East and prevailing economic uncertainties, with the looming fear of a recession, Gold has emerged as a haven for the majority of investors. The noteworthy surge in gold purchases by central banks during the September quarter, accounting for a substantial 337 tonnes out of the 800 tonnes acquired this year, underscores an optimistic sentiment towards gold."

Suresh Sadagopan, MD & Principal Officer, Ladder7 Wealth Planners added, “Gold is an asset that one can invest to get great diversification in a portfolio. Gold, as per research, brings down the risk in a portfolio as it is negatively correlated with stocks, dollars, etc. This particular time and the time going forward may be good for gold investment as there is a lot of geopolitical uncertainty and gold is a good asset to invest at such times. But keep gold investment for long - it is to be treated as a strategic investment in one’s portfolio."

Should you invest in gold ETFs?

It is crucial to view gold not only as a fleeting speculative endeavour but rather as a strategic long-term investment. In the context of recent developments in the gold investment landscape, individuals now have a wide range of choices beyond the conventional approach of purchasing physical gold for celebratory events. Given so many alternative opportunities to invest in gold, should one opt for gold ETFs? 

Hiren Thakkar, Chartered Accountant Proprietor, Hiren S Thakkar & Associates shared, “If you are someone with a tactical approach to gold investments, you may consider putting your money in gold ETFs. The reason is that most other gold investments either require or mandate you to stay invested for a considerably long period, say five to eight years, unlike gold ETFs wherein you may enter or exit at ease. Also, you may invest in small chunks in these ETFs through systematic investment plans (SIPs) or buy units when gold prices go down, unlike most others that require you to invest in a lump sum. There is no exit load charged in gold ETFs, thus, helping you save money also when you wish to exit your investments."

Manish Kothari, Cofounder, ZFunds echoed his views in a similar tone. Kothari said, “Retail investors looking for gold as an investment option should invest in gold mutual funds. Gold mutual funds enable investments of as low as 100, assure gains commensurate to increases in gold prices, and guarantee liquidity. Investors can also consider gold ETFs but they have to be cognizant of costs associated with ETFs, namely costs of maintaining a brokerage and Demat account, paying brokerage when they buy and sell gold, and having to depend on market participants for liquidity. On the other hand, investing in SGBs is an option for those willing to forego liquidity for the tenure of the bond. Considering the costs and availability of liquidity, retail investors should opt for gold mutual funds."

Should you invest in gold through ETFs?

Choosing gold ETFs involves digitally acquiring gold through a Demat account, which is essentially equivalent to owning a physical quantity of gold. In contrast to investments in physical gold, gold ETFs are recognized for their cost-effectiveness and the flexibility they provide to investors, allowing them to purchase as little as one unit of gold.

Numerous financial advisors advocate considering gold ETFs for investment, highlighting the advantage of electronic ownership, which alleviates concerns about gold storage and security. As a result, investors are spared the hassles of safeguarding their gold and ensuring its purity.

As Adhil Shetty, CEO, BankBazaar.com rightly puts it, “Gold has historically shown a low correlation with other asset classes such as stocks and bonds, which makes it a valuable addition to a diversified investment strategy. Gold also tends to retain its value during times of economic turbulence. Most important, ETFs eliminate the need for physical gold storage as they provide exposure to the price of gold, without offering the ownership of physical gold. This makes gold ETFs a viable option for those who are looking to diversify their portfolios or those who would like to invest in gold but are looking for higher liquidity and convenience compared to physical gold."

Vaibhav Jain, Head of Content & Education, ShareMarket (PhonePe Wealth) shared similar views on investing in gold through ETFs. Jain elucidated, “Gold ETFs should be the go-to choice for traders looking to capitalize on short-term gold price fluctuations. Their real-time trading, cost-efficiency, and seamless demat account access offer a convenient way to leverage short-term gains. These ETFs also help diversify portfolios, making them a decent option for savvy investors focusing on asset allocation."

Does putting money in a newly launched ETF help?

Undoubtedly, Edelweiss Mutual Fund enjoys a brilliant track record with the fund house having launched many new mutual fund products in the past year or more. The assets under management (AUM) of this asset management company (AMC) have gone up considerably in the past few years, thus, hinting at investors’ increasing trust and confidence in the company’s management and its financials. 

However, despite the name and fame surrounding an investment company, is it worth putting your money in the new fund offer (NFO) launched by it? At face value, NFOs may look like a novel opportunity to invest in, though it may not be worth the hullabaloo surrounding them.

Preeti Zende, SEBI-registered investment advisor and Founder of Apna Dhan Financial Services explained, “Normally investors keep on searching for different investment instruments now and then. They do so because they think they can diversify and somehow spread their investment risk. However, over-diversification increases investment risk and can reduce overall portfolio return. That why before investing in any new product better to understand whether you need it and what benefits it can offer which will be helpful to achieve your financial goals. Nowadays many IPOs, NFOs, and the launching of new ETFs are happening. I do not advise investing in any NFO because an NFO does not have any track record. It does not have any performance history. Even if it is from an established AMC, each NFO or newly launched ETF has its fate."

Historically speaking, ETFs are at a nascent level in India. That’s why some of them suffer from liquidity problems at times. Explaining how the lack of liquidity can be a bane in a newly launched ETF, Zende furthers, “ETF liquidity does matter as when you want to come out of the product you should easily be able to do so. The ETF’s composition and the trading volume of the securities that make it up primarily decide its liquidity. Liquidity also depends upon the ETF’s trading volume and the investment environment. That is why investment decisions should always be based on your risk-taking ability, the time horizon of the goal, and the liquidity of the product."

Explaining how liquidity concerns have marred the dreams of many investors who put their money in newly launched ETFs or those with low trade volumes, Vijay Kuppa, CEO, InCred Money shared, “While investing in an ETF, it is important to invest in those ETFs where you can get liquidity quickly and at fair prices. A narrow bid-ask spread indicates strong liquidity. Where there are options available (like Nifty 50 ETF), investors should prefer ETFs that have high volume and low spreads. If the ETF offering is unique, then investors can give slightly lower weightage to liquidity."

Investing in gold as a financial asset is an excellent choice. One way to do so is by purchasing gold in the form of a gold ETF. Gold ETFs in India are designed to mirror the market price of gold and are equivalent in value to pure 24-carat physical gold. When investing in gold ETFs, there are no associated costs for impurities or making charges. Nevertheless, with numerous established ETFs in the market boasting strong track records and the potential for better future returns, opting for one from the pool of existing ETFs offers a more distinct advantage compared to investing in a newly launched gold ETF.

 

 

 

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Published: 09 Nov 2023, 12:13 PM IST
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