Is your ETF as good as Gold?

Posted On Thursday, Aug 12, 2010

Paper currencies are turning into a joke as global policy makers are creating "money out of thin air", without any real asset backing whatsoever.

In times of such uncertainty, where do investors find solace? - They move towards the one currency that has proved its allure over centuries - Gold!

And such is the trend to which we stand witness; investments in gold are increasing, an encouraging sign for gold propagandists; but this new ‘rush for gold’ has investors confused about the right way of owning gold - Is physical gold better? Or Should I invest in ETFs?

Uncertainty is the perfect breeding ground for suspicion, and hence in such times you could come across sinister theories about physically backed ETFs for gold (and other precious metals). Conspirators argue that Gold ETFs don’t actually hold physical gold, and, definitely not as much as they claim they do.

With such exaggerated caution doing the rounds of cyberspace, reflected in the media and shared by your friendly next door neighbor; it is not surprising that you’re still debating the prudence of ETFs.

An email I received recently exhibited a similar dilemma:

"Gold analysts have raised a lot of questions about validity of Gold ETFs which don’t seem to be backed by full physical gold. Doesn’t that make ETFs a kind of paper gold, backed fractionally by the real asset? I am confused about whether to invest in Gold ETFs vis-à-vis physical gold."

And so in response to this query: Yes, there have been many conspiracies floating in the market on international Gold ETFs. And while care must be taken to study the situation, an inflated sense of caution is not the ideal solution. In such scenarios, you must ask yourself: How true are these theories? Is this really applicable to the investments that you intend to make?

One important fact to understand is that though such products in international markets may sound similar in concept but domestic products are regulated by a different board and have a separate set of rules to abide by and hence may differ in intricacies/practices followed.

Here’s a look at the guidelines we ensure while managing your investments in Quantum Gold ETF.

In Quantum Gold ETF:

Each unit is backed by physical gold of 0.995 purity manufactured only by London Bullion Market Association (LBMA) accredited refiners. It invests only in physical gold and no derivative instruments are permitted. Gold held by the fund is identifiable by the serial number which is unique for each gold bar. A bar list along with other refiner details are maintained by us and the custodian, which is cross checked during our verification visits to the gold vaults. Gold held by the fund is in allocated accounts. This means that it is segregated and kept separately from all the other gold held by the custodian in the vault. Quantum Gold Fund has been allocated one locker inside the vault which has a capacity to store up to 1 ton of gold.Only and all, the gold belonging to Quantum Gold ETF is stored in this vault. Gold held is not leased out and is always held in custody.The current regulations do not permit leasing of gold held by the fund.All the physical gold is regularly audited and also physically verified by the fund management team here on a monthly basis.Each gold bar is accompanied by the necessary documents that evidence its origin, authenticity and purity. All the gold held is completely insured including a cover for terrorism insurance.

As regards Gold ETFs, all the gold held is owned by the fund and is held with the custodian only for safekeeping. It is not the liability of the custodian and therefore does not entail any counterparty exposure as it is physically owned by the fund.

We would not able to verify the appropriateness of the various conspiracies floating, but we are sure about the safety of investments in Quantum Gold ETF. In simple words, Quantum Gold ETF is "as good as Gold"; rather a more efficient, convenient and hassle free way of owning gold.

Click here to invest in the Quantum Gold Fund ETF

Click Here for a list of some prominent online brokers through whom you may purchase the Quantum Gold Fund.

Disclaimer: The views expressed in this article are the personal views of the Fund Manager of Quantum Gold Fund. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purpose only and is not meant to serve as a professional guide/investment advice for the readers. This article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments.

Investment Objective: Quantum Gold Fund’s (QGF) investment objective is to generate returns that are in line with the performance of gold and gold related instruments, subject to tracking errors. However, investment in gold related instruments will be made if and when SEBI permits mutual funds to invest in gold related instruments. The Scheme is designed to provide returns that before expenses, closely correspond to the returns provided by gold. Asset Allocation: QGF will primarily invest in physical gold and if allowed under SEBI Regulations, also in gold related securities including derivatives, and the scheme may invest in Money Market Instruments, short term corporate debt securities,CBLO and units of Debt and Liquid Schemes of Mutual Funds to meet liquidity needs. Terms of Issue: QGF is an open-ended Gold Exchange Traded Fund. Each unit of QGF will be approximately equal to the price of half (1/2) gram of Gold. Units will be issued at NAV based prices. On an ongoing basis direct purchases from the Fund would be restricted to only Authorised Participants and Eligible Investors. Units of QGF can be bought /sold like any other stock on the National Stock Exchange of India Ltd (NSE) or on any other stock exchanges where it is listed. Entry Load: N.A. Exit Load: Nil in case of Authorised Participants; 0.5% in case of Eligible Investors. Risk Factors: All Mutual Funds and securities investments are subject to market risks including uncertainty of dividend distributions and the NAV of the schemes may go up or down depending upon the factors and forces affecting the gold and securities markets and there is no assurance or guarantee that the objectives of the scheme will be achieved. Quantum Gold Fund, is the name of the scheme and does not in any manner indicate either the quality of the Scheme, its future prospects or returns. Scheme Specific Risk: The QGF’s NAV will react to the Gold price movements. The Investor may lose money over short or long period due to fluctuation in Scheme’s NAV in response to factors such as economic and political developments, changes in interest rates and perceived trends in bullion prices, market movement and over longer periods during market downturns. Trading volumes, settlement periods and transfer procedures may restrict the liquidity of these investments of the QGF. It is to be distinctly understood that the permission given by NSE should not in any way be deemed or construed that the Scheme Information Document for QGF has been cleared or approved by NSE nor does it certify the correctness or completeness of any of the contents of the said Scheme Information Document. The investors are advised to refer to the Scheme Information Document of QGF for full text of the ‘Disclaimer Clause of NSE’. Statutory Details: Quantum Mutual Fund (Fund) has been constituted as a Trust under the Indian Trusts Act, 1882.Sponsors: Quantum Advisors Private Limited. (Liability of Sponsor limited to Rs. 1,00,000/-)Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and the Investment Manager are incorporated under the Companies Act, 1956..The past performance of the Sponsor / AMC/ Fund has no bearing on the expected performance of the scheme. Mutual Funds investments are subject to market risks. Please read the Scheme Information Document(s) / Key Information Memorandum(s) / Statement of Additional Information / Addendums carefully before investing. Scheme Information Document(s) /Key Information Memorandum(s)/ Statement of Additional Information can be obtained at any of our Investor Service Centers or at the office of the AMC 505, Regent Chambers, 5th Floor, Nariman Point, Mumbai – 400 021 or on AMC website www.QuantumAMC.Com /

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