New flavour: Gold exchange traded funds

MUMBAI: Gold Exchange Traded Funds (ETFs) are the latest financial instrument to hit the market. And in a gold crazy country like India, it sure has the potential to emerge as a popular investment product.
At present, gold ETF from Benchmark Mutual Fund — the fund house that had conceptualised the world's first gold ETF product before the Australians took it to their country in 2003 — is open for subscription, which closes Monday.UTI Mutual Fund, the country's second largest fund house by total assets, is also launching its gold ETF scheme on March 1.
Investing in gold through the ETF route comes with a number of advantages over holding physical gold for investment. Apart from the cost advantage of ETFs, there is also the risk of safely holding physical gold and the issues relating to the purity of the yellow metal when bought from the market. In addition, gold ETFs enjoy some advantages from the taxation point of view.
In case of assets other than mutual fund units and shares, investors or the holder of the asset could avail of long-term capital gains tax only if such assets are held for more than three years. However, in the case of Gold ETF units, they being mutual fund units, would qualify for longterm capital gains tax if held for just over one year, says A K Sridhar, chief investment officer, UTI MF.
Under the Indian tax laws, an individual also has to pay wealth tax at the rate of 1% of the value if the value of wealth exceeds Rs 15 lakh. This is a recurring expense for the individual, as it is incurred every year.
Again gold ETFs score over physical gold on this front. Whatever the magnitude of investment, investments in gold ETFs will not attract any wealth tax, said Sanjiv Shah, ED, Benchmark MF.
Trading in stocks attracts securities transaction tax (STT), which is a small percentage of the total value of the transaction.
However, although gold ETFs will be listed on the bourses and investors will be able to buy and sell these units (1 unit=1 gram of physical gold), trading will not be subject to any STT. This is because these ETFs are mutual fund units and not securities.