Exchange Traded Funds or ETFs are investment schemes whose units are listed after NFO on stock exchanges and traded like equity shares. An ETF would have some underlying security or group of securities like an index, sector stocks or commodities, like gold. These underlying securities determine the ETF’s value.

A Gold ETF is an ETF that has gold as the underlying security. So, the value of the ETF is derived from the value of underlying gold. A gold ETF would be a passive investment; so, when gold prices move up, the ETF appreciates and when gold prices move down, the ETF loses value.

Gold ETFs offer the best of both worlds. The investor has the advantages of owning physical gold, without suffering additional expenses and losses like making charges (for gold jewellery), and bank vault charges (for keeping coins or bars or jewellery. The investor does not need to worry about insurance and transportation.

• Jewellers and banks charge premium and making charges on the gold sold. So, if investors purchased gold from the retail jeweller or a bank, it could have resulted in a straightaway loss of 5-20%.
• There are no concerns of quality- The gold backing the ETF is sourced from London Bullion Market Association approved refiners and stored in vaults.
• The investor need not worry about thefts - The fund house takes care of all risks of storage and safety for a minimal expense ratio.

The Quantum Gold Fund seeks to offer investors an innovative, cost-efficient and secure way to invest in gold. Through the lower cost of operations and the availability of units having smaller denominations, the Quantum Gold Fund would provide investors an excellent means of asset allocation.

Each unit of the Quantum Gold Fund will approximately be equal to ½ gram of pure gold (0.995). Thus, an investor can buy gold in units of ½ gram, one of the lowest thresholds for investing in gold. This could be lower than Rs. 600/ per unit, based on the domestic price of Gold as on January 9, 2008.

The Quantum Gold Fund would also be the first in the country without any entry loads, during the NFO

As all the Gold ETFs track gold, the only differentiating factor would be the costs. The lower the costs of the ETF scheme, the higher the NAV.

As mentioned earlier, The Quantum Gold Fund would also be the first Gold ETF in the country without any entry loads, during the NFO.

(A) During New Fund Offer Period:

Investor Category	Entry Load	Exit Load
Authorised Participants	Nil	Nil
Eligible Investors	Nil	0.50%
Retail Investors	Nil	Not Applicable*

*Retail Investors can exit the scheme only through Secondary Market. (B) Ongoing Basis:

Investor Category	Entry Load	Exit Load
Authorised Participants	Nil	Nil
Eligible Investors	Nil	0.50%
Retail Investors	Nil	Not Applicable*

# On an ongoing basis exit is provided by the Fund only to Large or eligible investors. Large/Eligible investors are those holding 2,000 units or more. Retail investors (i.e those holding less than 2,000 units) who wish to sell their units exit is only through sale in the exchange (the NSE.)

The load structure is however, subject to change from time to time and such changes shall be implemented prospectively.

All gold bullion held by the fund will be 1kg bars of 0.995 purity sourced from LBMA (London Bullion Market Association) approved refiners.

By investing in QGF units, investors can get exposure to gold without the hassles of physical delivery of gold. The QGF will closely track, before expenses, the yield of its underlying asset - 0.995 pure gold.

If gold were purchased in the physical market; either from a retail jeweller or a bank, additional premiums or making charges would be added. This could straight away lead to a loss of about 5 to 20% of the value of the gold. By investing in ETFs, these additional costs can be avoided.

The hassles of holding physical gold are also avoided. The investor has the advantages of owning gold, without incurring additional expenses and losses like making charges (for gold jewellery), and bank vault charges (for keeping coins or bars or jewellery).

Buying and selling is also very easy. There is no need to physically carry the gold for a transaction. Like any other traded security, one can buy and sell ETFs though your broker on the stock exchanges. It would be as convenient as calling your broker on the phone or placing an order online

Parameter	Jeweller	Bank	QGF
Purchase and Sale	In physical form	In physical form	In dematerialised form
Price advantage	No - sells at higher premium	No - sells at higher premium	Yes - likely to be least premium
Price standardisation	No - varies from jeweller to jeweller	No- varies from bank to bank	Yes - linked to international gold prices
Making charges	Incurred	Incurred	Not incurred
Risk of impurity	May exist	unlikely, but possible	Not involved
Storage requirements	Locker or safe	Locker or safe	Held in demat form
Security Responsibility	Owner / Investor	Owner / Investor	Fund House
Resale	At loss after deduction of making charges	Banks do not buy back	At listed exchange at transparent prices
Convenience in holding and transacting	Low - due to physical movement and transfer	Low - due to physical movement and transfer	High - due to demat form
Tax advantages	Low	Low	High (refer to table on tax in Q no. 9)

The Quantum Gold Fund’s total expense ratio is estimated to be 1.25% per annum.

Gold ETFs have several tax advantages over holding physical gold.

Parameter	Jeweller	Bank	QGF
Wealth Tax	Applicable	Applicable	Not Applicable
Short Term Capital Gains Tax	Applicable before 3 years	Applicable before 3 years	Applicable before 1 year
Long Term Capital Gains Tax	Applicable after 3 years	Applicable after 3 years	Applicable after 1 year

The investment objective of the Quantum Gold Fund is to provide returns that, before expenses, closely correspond to the returns provided by the domestic price of gold.

Investments	Indicative Allocation (% to net assets)	Risk Profile
Physical Gold	90% to 100%*	Medium to High
Money Market instruments, Short-term Corporate debt securities, CBLO and units of Debt and Liquid Schemes of Mutual Funds	0% to 10%	Low

As the scheme invests 90% to 100% of the net assets into Gold, the scheme will, by and large, be passively managed fund. However, if and when permitted under SEBI regulations, the scheme may invest in gold related securities including derivatives.

The New Fund Offer (NFO) of the scheme would be open from January 24, 2008 to February 8, 2008. During this period, any investor can subscribe to the scheme with a minimum investment of Rs. 5,000 and further multiples of Rs. 1,000.

Subsequent to the NFO, the ETF is proposed to be listed on the National Stock Exchange (NSE). Investors can then buy / sell the QGF units on the Exchange, through any broker-member.

When trading on the exchange, investors can take advantage of the low unit size of the QGF and buy in units representing approximately ½ grams. (As low as around Rs. 600 per unit based on the prices of Gold on January 9, 2008)

Allotment price is the price of ½ gram of physical gold in the domestic market.

From an accounting perspective- the QGF unit has a face value of Rs. 100. The allotment price would thus be equal to the face value of Rs. 100 plus a premium equivalent to the difference between the face value and the price of ½ gram of physical gold in the domestic market.

For instance, if the price of ½ gram of gold is Rs. 550, the allotment price would be Rs. 100 + Rs (550-100) = Rs. 550/- (The above example is for illustration purpose only)

The QGF is available only in dematerialized form. So, applicants would be required to have a (demat) beneficiary account with a Depositary Participant (DP) of either NSDL or CDSL. The DP’s name, ID number and the beneficiary account number of the applicants have to be mentioned in the application form.

The transactions are settled in demat mode as per the normal exchange settlement procedures.

Quantum Mutual Fund follows a direct-to-investor approach. During the NFO, investors can download the application form from www.QuantumAMC.com. You can also call us on our toll free number 1-800-22-3863(BSNL/MTNL) or 022-22829414 / 61447800 and we will send across an application form. We can also be contacted at Info@QuantumAMC.com and at our postal address:
Quantum AMC Pvt. Ltd., #505, 5th Floor, Regent Chambers, Nariman Point, Mumbai 400021

Application forms are also available at designated offices of Quantum Information Services, BNP Paribas and Deutsche Investor Services

Completed forms can be deposited at any of the locations mentioned above and also at the collection centres of HDFC Bank.

The NAV of the QGF is determined on the basis of the market value of gold. This is determined as per the valuation norms prescribed by SEBI. An illustrative example is given below:

NAV calculation

Market price for ½ gram of gold (Rupees)	Rs. 549.20	-
Total gold held by the scheme (in grams)	99,000	-
Value of the gold held by the scheme (Rupees)	Rs. 10,87,41,600	549.20 * 2 * 99,000
Cash held by the scheme	Rs. 10,98,400
Net Assets of the Scheme	Rs. 10,98,40,000	Sum of gold and cash
No. of units of the scheme (1/2 gram units)	200,000	-
NAV per unit	Rs. 549.20	Net assets / No. of units

The expenses of the scheme are met from the cash held by the scheme; if the cash so held is insufficient, then gold held by the scheme would be sold.


For ease in understanding, the gold price has been assumed to be constant throughout the 5 years. This could not be the case in reality. Prices may go up or come down, affecting the NAV of the units.
* In initial year scheme envisages that cash component is sufficient to meet expenses. Hence gold may be sold for recurring expenses in later years.
** In later years, say Year 4, cash component value also includes the value of gold sold for meeting expenses.
*** In the given example, NAV per unit reflects the Net Asset Value arrived at the beginning of the year.
**** The above table is for illustration purpose only. The figures may or may not be authenticated.

As prescribed by SEBI, the Gold held by the Fund shall be valued at the AM fixing price of London Bullion Market Association (LBMA) in US dollars per troy ounce for gold having a fineness of 995.0 parts per thousand

The calculation in general would flow as follows:

International price of Gold - $/Troy Oz	840.00
Add: C.I.F Premium (Cost of Import) -$ *	1.00
Total international Price of Gold	841.00
Price of Gold in $ per 10 grams	269.04	Conversion factor for Troy Oz into 10 grams (0.3199)
Exchange Rate (RBI Reference Rate)*	40.00
Price of gold in Rs. Per 10 grams	10761.44
Import duty (206/10grams)*	206
Total Price of Gold	10967.44
Add: Octroi (0.10%)*	10.97
Total cost	10978.41
VAT (1%)*	109.78
Domestic price of Gold per 10 grams	11088.19
Total Landed Price of Gold per gram	1108.82
Price of gold per 1/2 gram	554.41

After the NFO, retail investors can buy or sell additional units only through the listed exchange. Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP) are currently not available.

Investors do have the option of regularly buying units from the listed exchanges and accumulating their QGF holdings.

The Authorised Participants (APs) are appointed by the AMC. They act as market makers to improve the liquidity of the ETF on the exchanges. The APs provide quotes in the exchange and ensure that investors have a ready buyer and seller any time they wish to enter into a transaction during market hours.

After the NFO, only authorized participants and eligible investors can create/ redeem units directly with the fund.
br> Eligible investors are investors who buy units in creation unit size. Presently this size is 2000 units and is equivalent to 1 kg of physical gold. Eligible investors can directly create or redeem the units in lieu of physical gold of 1 kg and multiples thereof from the AMC if they so desire. Please do refer to the offer document for more information and the terms and conditions for the same.

Existing investors in Quantum Mutual Fund’s other schemes can switch into the QGF during the NFO. There will be no exit loads on the Quantum Liquid Fund. In the case of the Quantum Long Term Equity Fund, exit loads will be charged at applicable rates as prescribed.

During the NFO, investors can make payment through cheque or DD. Existing investors in Quantum Mutual Fund’s other schemes can switch into the QGF during the NFO. For more details, please refer to previous question

After the NFO, only Authorised Participants and Eligible investors can create and redeem units directly with the AMC by transferring the requisite amount of Gold (Please refer to the offer document for more details)

After listing, retail investors can buy and sell on the exchanges through their brokers.

After the NFO, the Quantum Gold Fund units would be listed on the stock exchanges and retail investors can buy and sell it just like any other security.

Only authorised participants and Eligible investors can create/ redeem units directly with the fund.

The value of Gold ETF units is determined by the value of the underlying gold. As there are currently no standardised indices or benchmarks catering to gold, the QGF will be benchmarked against the price of physical Gold in the domestic market

Ever since our inception, we have been following an investor-friendly approach. Even before the SEBI order, Quantum AMC’s offerings have been without an entry load. In the case of the Quantum Gold Fund too, we are the only scheme (till date) in India without any entry loads during the NFO. As an investor, it will be beneficial to buy the Quantum Gold Fund units during the NFO as there are no additional costs or loads. After the NFO, you will be incurring a brokerage cost when you buy and sell on the exchanges.

In the Quantum Gold Fund, the physical gold is held in the form of LBMA approved bars of 1 kg weight. If an investor accumulates units equivalent to 1 kg gold (every Quantum Gold Fund unit is approximately equal to half gram of Gold), he can redeem those units with the fund and take delivery of 1 kg gold.

The investor should also keep in mind that on physical delivery, a ‘cash component’ may be received by him or payable by him if applicable. An exit load of 0.5% would also be applied.

Delivery of the gold will be at the vault’s premises in Mumbai only