Motilal Oswal Fund is the latest to join the gold rush with its new Exchange-Traded Fund (ETF), MOSt gold shares. But with 12 listed gold ETF schemes already being traded in the market, the fund may have felt the need to differentiate its product offering. It has come up with a scheme where you can redeem the gold ETF in cash at the exchange floor, or instead take delivery in physical gold from the fund house.
FEATURES
The investment made in MOSt gold shares is no different from some other gold ETFs, at the time of buying and holding the fund. But the scheme offers you an option to redeem your ETF units for physical gold of a minimum quantity of 10 grams in bars. Gold delivery is being promised across 22 cities in the country, with a tie-up of RiddiSiddhi Bullions, one of the largest bullion dealers in the country.
Gold ETFs in the market currently allow physical delivery for a minimum of 1 kg of gold, effectively restricting this option to large investors.
However, the delivery mechanism does come with some strings attached. You will suffer delivery charges on gold if you redeem gold of less than 1000 grams.
You will have to pay Rs 750 per 10 gram of gold, Rs 250 per 100 gram of gold, and nil above 1000 grams. Thus, besides, the usual de-mat, brokerage charges and securities transaction tax that you will have to pay to your stock broker when units are bought from the exchange, the delivery charge on redemption of physical gold is an additional cost.
The new fund offer of MOSt gold shares is open from March 2 to March 16. Investors will have delivery of units on T+2 days when bought through the exchange post listing. However, those looking to redeem units for physical gold from the AMC will be given delivery in T+5 days. The tax treatment on capital gains at the time of redeeming the units is similar to that of a debt scheme. Wealth tax won't be applicable at the time of holding the ETFs.
GOLD ETFS
If you are looking at gold as an investment tool and want to benefit from price gains of the metal, gold-ETFs are a good choice. But in choosing an ETF platform, you should look for fund houses with a relatively large asset base, which have high liquidity on the exchanges.
If volumes are scarce, there is a risk of the market price of the ETF diverging considerably from the fund's underlying NAV. This may also place you at a disadvantage both while selling and buying.
MOSt gold shares focus on the retail segment, and one has to wait to see if it is successful in pulling a significant share of the market volumes. The gold-ETF market is already divided between 12 players, with Goldman Sachs GoldBeES taking a lion's share.
This said, the unique feature that MOSt gold shares offer to retail investors is the delivery of gold. If you wish to buy gold in bars of small size and take delivery, there are limited options in the market currently.
The listed gold ETFs in the market offer to deliver gold only for an order above one kilogram, and have very few delivery centres. E-gold of National Spot Exchange gives delivery of gold starting from one gram, but the disadvantage is that the holdings here are subject to wealth tax, and capital gain is taxed at the slab rate when sold before 36 months.
MOSt gold shares may also be a superior option for consumers who now invest in gold-saving schemes of jewellers. The former scores more than gold-saving schemes on a few counts: one, MOSt gold shares promises to give you high quality gold (99.5 per cent purity or 24 carat).
Two, you will get to save on the wastage and making charges that you incur at the jeweller's.
On the down side, the delivery charge is an additional expense if you redeem MOSt gold shares.