ETF NFO: Wait to buy ETF in open market after listing

As per the news on certain financial websites, Investing in gold ETFs appears to be costlier during the new fund offer (NFO) period.
For example, the Gold Benchmark Exchange Traded Scheme, which was launched in February 2007, charged an entry load of 1.5 per cent and UTI Gold Exchange Traded Fund, launched in March 2007, charged 2.5 per cent. Investors can look for opportunities in these funds when they are listed on the stock exchanges for open trading to avoid the entry load in the NFO period.

Although investors are not required to pay an entry load while investing in listed gold ETFs, they have to pay a brokerage fee. Brokerage charges are similar to what is charged while investing in stocks — around 0.5 per cent of the transaction value. However, the charge varies from one broker to another.

A pre-requisite for investing in gold ETF is to have a demat and trading account with a broker. To maintain these accounts, investors have to pay annual charges. There is also the expense ratio, a recurring expense, attached with the fund. Both Gold BeES and UTI Gold ETF have an annual expense ratio of 1 per cent.

Related: Quantum Gold based ETF, Investing in Gold?, Example of ETF with calculations & AIG Gold Fund Review

The annual expenses such as storage, insurance, and management fees are charged by selling a small amount of gold represented by a certificate. The amount of gold in each certificate will gradually decline over time. Investors need to consider these charges before investing.

Hence, it would be advisable to wait for the NFO period for Gold based ETF to be over and then buy the shares of Gold ETF in the open markets.

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AIG World Gold Fund Review

AIG Investments have come out with an NFO or New Fund offer, for a fund dedicated to investing only in the Gold based business.
The fund is called the AIG World Gold Fund.

What is the offer period or subscription dates for AIG World Gold Fund?
The fund will accept applications from April 15th to may 14th.

When will the fund re-open for further purchase and redemption?
The AIG World Gold Fund will again open on June 12, 2008

What is the AIG World Gold Fund all about?
The primary objective of the AIG World Gold Fund is to capitalize and gain from the stocks and other instruments based in the gold business – namely, processing, extracting & marketing of gold. Interestingly, the company or the AIG World Gold Fund will NOT be purchasing the shares of the Gold business based companies directly. Instead, what it will do is simply invest the investors money into the Zurich based AIG PB Equity Gold Fund. This is the fund which will actually invest in the stocks and other instruments of gold based company. Hence, for the investors in India, it is only a simple business of buying units of a fund, which will invest in another fund units. (Read: How fund of Funds work?)

Since they are simply collecting money from investors here, and investing in some other fund, why are they taking the fund management charges? How about simply buying a gold based ETF, instead of paying heavy fund management charges to the AIG World Gold Fund?

Moreover, AIG is the same company which has lost heavily on derivatives recently

Related: Quantum Gold based ETF, Investing in Gold?

What is the underlying principles behind the AIG World Gold Fund?
Simple and straightforward, since the gold prices have going up in the recent past, so the fund management is betting on the assumption that it will go up in future as well. Ultimately, it’s the investors who have to take the call.

What is the risk involved in AIG World Gold Fund?
High Correlation and dependency on gold prices. What is you buy this fund unit when gold price is at 12,000 and for the next 5 years the gold prices keep falling down.

What about Entry and exit load information of AIG World Gold Fund?
No information is available about the entry and exit load of AIG World Gold Fund.

But definitely there will be the standard charges minimum 2.25% (my assumption, please check while applying for this gold fund) Any tax benefit available in AIG World Gold Fund? No tax benefit is available.

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Damas IPO Review

Gold prices have scaled new heights.
So are the companies who are in the business of Gold. Gold trading has been fruitful for most of the investors and business houses who are in the business of precious metals. Probably, that’s why the Mexican firm Penoles has decided to spin off its precious metals business under a new name of Fresnillo and floating an IPO.

The other companies are not staying behind. Damas, which is known as the retail stor chain of gold jewellery in the Middle East, is all set to come out with an IPO. By the end of this year. Not only that, it also plans to subsequently merge & join hands with a leading regional jewellery chain to create an international giant from the UAE. Who is this official, is not known.

Whaere doe Damas Business valuation stand presently?
Damas, has an annual sales turnover of $1.4 billion (Dh5.14bn) and net profit was $65 million in 2007.

Where will the shares of Damas be listed?
The shares will be listed on the domestic stock market of UAE.

It’s another signinficant milestone for Damas. This is its 100th year of operation, so an IPO for Damas will also be a reason to cheer the 100 years of existence of Damas jewellery.

Where will the IPO capital raised by Damas be used?
The group, estimated to be worth Dh3.5bn, is planning an IPO reportedly in the range of Dh1bn and part of the money raised could be used for the proposed acquisition. Damas was started in 1907 and Abdullah is the fourth generation running the family-owned business. He is also the managing director of the Dubai Gold and Jewellery Group. Damas is 70 per cent owned by four brothers of the Tawhid family and 30 per cent owned by two business groups from the UAE and one business group from Saudi Arabia.

Damas is planning to double its current 430 outlets and 5,000 employees in the UAE and outside within three years and is investing more than $750m for the expansion. It is also considering acquiring a jewellery outlet in central Europe.

The company is targeting new markets in Egypt, Turkey, North Africa, Pakistan, Bangladesh, India and China.

More and more IPO’s coming out everyday. Let’s see how the Gold business based Damas performs in these market timings.

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Gold Investments? Gold price rising again: Consider Gold ETF

Nothing comes for free in this world. Just after Fed declared a 75 basis points rate cut, the worries for higher inflation were automatically in.
Bernanke also included a formal warning about inflation and the effect is seen immediately.

After waiting for 3 days, the Gold prices have jumped for the first time in last 3 days. Even the other precious metal – silver – went upwards.

As per the commodity analysts, the Gold prices will continue to rise further. Oil prices are already on the high and a weak dollar, which forces gold prices upwards. In the recent development where Fed has gone for rate cut as many as 6 times, the gold is expected to continue its bull run.

People with limited savings may not be able to purchase the gold for investments, hence they are advised to opt for Gold ETF’s or Gold Exchange traded funds.

Gold for immediate delivery, which had dropped 2 percent yesterday, rose as much as 0.6 percent to $988.55 an ounce, which is 4.3 percent below the all-time high $1,032.70 set March 17. It traded at $987.66 at 10:55 a.m. in Tokyo. Silver for immediate delivery gained 0.3 percent to $19.78 an ounce.

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Review of Quantum Gold Fund (Gold ETF)

The famous and well known fund house Quantum Mutual Fund has come out with its first ever commodity-related mutual fund offering – titled as the Quantum Gold Fund.

Review of Quantum Gold Fund: Exchange Traded Fund
The Quantum Gold Fund is an open-ended Exchange Traded Fund (ETF), which will be listed on the National Stock Exchange of India (NSE), closely tracking the domestic prices of gold. Since its an open ended fund, any number of units can be created and redeemed at any time, as per the demand and supply requirements. Usually, there have been not many commodity based ETFs in India. We do have UTI Gold traded exchange fund and one or two more such offerings, but the choices are limited for investors looking for investing in such funds.

Should I invest in Quantum Gold Fund:

Traditionally, India has been the biggest consumer of gold and that holds true till date. However, high prices of gold have now made gold out of reach of the common man. Someone with just 5000 to 6000 amount cannot even think of buying 10 grams of gold, as the gold prices are hovering in the range of 11,00-12000. Hence, Investing in ETF’s which have lower prices for each unit can help the small investors.

How Gold based ETF’s help?

Gold (or any commodity) based ETF’s try to track the gold prices and if the fund management is efficient enough, then the fund unit price almost exactly replicates the price of gold in the market. However, the advantage of (gold based) ETF is that you don’t need to have the big amount of 11,000 to invest in gold. All you can simply do is buy a unit of such gold based ETF at a price which may be anything from 10 to 1000 per ETF share, and let it gain (or loose) in percentage terms while tracking the gold prices. Hence, it gives a very good option to investors who want to invest in gold (or other commodities) without actually buying it.

Another advantage of gold based ETF is that you don’t need to worry about safe storage of the gold. Since the ETF is bought as a share, it sits in your demat account. Hence, the worries of theft or loss of actual gold ornament or bars is gone.
However, one thing you must note is that buying ETF does not guarantee any returns. Since it tracks the gold prices, it can give you losses too. If you buy ETF worth 10 Rs. a unit when the gold price is at 10,000 and after one year the gold prices fall down to 8,000, then your ETF unit cost will also come down to Rs. 8 or so. Hence, there is no guarantee of profits.

Another disadvantage is the cost of brokerage or fund management charges – which one should be aware of while making investments.

The New Fund Offer (NFO) of the Quantum gold ETF scheme would be open from Thursday, 24th January, 2008 to Friday, 8th February 2008. During this NFO period, investors can subscribe to the scheme with a minimum investment of Rs 5,000 and further multiples of Rs 1,000. The Quantum Gold Fund seeks to offer investors an innovative, cost-efficient and secure way to invest in gold. The Fund enables investors to buy gold without the hassles of holding and storing physical gold. The Fund will closely track, before expenses, the movement in the price of the underlying asset-physical gold of 0.995 fineness. The good thing is that the Quantum Gold Fund will be the first Gold ETF in the country without any entry load during the NFO. Investors can try their luck on gold prices!

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