EXECUTIVE SUMMARY

Exchange Traded Funds (ETFs) are mutual fund units which investors buy/sell from the stock
exchange, as against a normal mutual fund unit, where the investor buys /sells through a
distributor or directly from the AMC. Practically any asset class can be used to create ETFs.
Globally there are ETFs on Silver, Gold, and Indices. Gold ETFs are a special type of ETF which
invests in Gold and Gold related units. Investors can buy G-ETF units from secondary markets
either from the quantity being sold by the APs or by other retail investors. Retail investors can
also sell their units in the market. Exchange Traded Funds (ETFs) are open ended mutual funds
that are passively managed and most of them seek to mirror the return of an index, a commodity
or a basket of assets. ETFs are listed and traded on stock exchanges like stocks. They enable
investors to gain broad exposure to indices or defined underlying asset (commodity) with relative
case, on a real-time basis, and at a lower cost than many other forms of investing. Gold backed
Exchange Traded Funds (ETFs) are units designed accurately to track the gold price. ETF
liquidity is supported by large professional market makers and dealers, in the normal way of
providing liquidity on the relevant stock exchange. Additionally there is the facility to create and
redeem new units – on demand.

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 1.1 INTRODUCTION

ETFs are just what their name implies: baskets of units that are traded, like individual stocks, on
an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the
trading day like any stock. Most ETFs charge lower annual expenses than index mutual funds.
However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a
significant drawback for those who trade frequently or invest regular sums of money. Exchange
Traded Funds (ETFs) are open ended mutual funds that are passively managed and most of them
seek to mirror the return of an index, a commodity or a basket of assets. ETFs are listed and
traded on stock exchanges like stocks. They enable investors to gain broad exposure to indices or
defined underlying asset (commodity) with relative case, on a real-time basis, and at a lower cost
than many other forms of investing.

Gold ETFs provided investors a means of participating in the gold bullion market without the
necessity of taking physical delivery of gold, and to buy and sell that participation through the
trading of units on stock exchange. 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 ETF tracks the performance of Gold Bullion. Gold ETFs provide returns that, before
expenses, closely correspond to the returns provided by physical Gold. Each unit is
approximately equal to the price of 1 gram of Gold. But, there are Gold ETFs which also provide
a unit which is approximately equal to the price of ½ gram of Gold. They first came into
existence in the USA in 1993. It took several years for them to attract public interest. But once
they did, the volumes took off with a vengeance. Over the last few years more than $120 billion
(as on June 2002) is invested in about 230 ETFs. About 60% of trading volumes on the
American Stock Exchange are from ETFs. The most popular ETFs are QQQs (Cubes) based on
the Nasdaq-100 Index, SPDRs (Spiders) based on the S&P 500 Index, iSHARES based on MSCI
Indices and TRAHK (Tracks) based on the Hang Seng Index. The average daily trading volume
in QQQ is around 89 million shares. Their passive nature is a necessity: the funds rely on an
arbitrage mechanism to keep the prices at which they trade roughly in line with the net asset
values of their underlying portfolios. For the mechanism to work, potential arbitragers need to
have full, timely knowledge of a fund's holdings.

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Both retail and institutional investors have found ETFs to be excellent investment vehicles.
Across all types of investors, there are a number of key characteristics that make ETFs attractive,
most notably:

• Continuous, Intraday Pricing: In sharp contrast to traditional mutual funds, ETFs trade on
exchanges throughout the day. As a result, pricing is continuously updated. On many
exchanges, pricing is available in bonds.
• Access to indicators and Indexes: Since each ETF share represents a fraction of a basket of
units, ETFs provide simple, low-cost access to numerous indicators and industries (e.g.,
Telecommunications), as well as popular indexes (e.g., S&P 500). ETFs also provide many
opportunities for style investing – growth, value, core, etc.
• Ability to Track an Entire Market Segment: The core guiding principle of an ETF fund
manager is to track the underlying index as closely as possible. As a result, ETFs provide
investors with a simple, transparent and accurate means of tracking a complete market
segment.
• Diversity in Investment Opportunities: Managing around the fate of single stocks is an
important part of many individual and institutional investment strategies. ETFs, through their
expansive underlying basket of units, allow instant portfolio diversification.
• Low Expense Ratios: Unlike actively managed mutual funds that charge high fees for fund
manager expertise, marketing, and high levels of fund retooling, ETFs inherently have low
expense ratios because of limited fund manager decision-making.
• Tax Efficiency: In the U.S., the most successful ETFs provide excellent tax efficiency through
low turnover rates, as well as the unique in-kind creation and redemption process that shields
investors from capital gains associated with cash-outs.
• Transparency: ETFs demonstrate a high level of transparency because they are based on well-
published fund holdings – these are most commonly a basket of equities that track an index.
• Equalize Cash: Both institutional and retail investors find ETFs to be a low-cost option for
parking excess cash in the broad stock market.
• Portfolio Risk Management: Unlike traditional mutual funds, ETFs support market, limit, and

short trading, as well as derivative products such as options and futures.

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 1.2 CONCEPTUAL FRAMEWORK

Mutual Fund

A mutual fund is a professionally-managed type of collective investment scheme that pools

money from many investors to buy units (stocks, bonds, short-term money market instruments,
and/or other units). A mutual fund has a fund manager that trades (buys and sells) the fund's
investments in accordance with the fund's investment objective.

Types of Mutual Funds

1) Open-end Funds

The term mutual fund is the common name for what is classified as an open-end investment
company. Being open-ended means that, at the end of every day, the fund continually issues new
shares to investors buying into the fund and must stand ready to buy back shares from investors
redeeming their shares at the then current net asset value per share.

Mutual funds must be structured as corporations or trusts, such as business trusts, and any
corporation or trust will be classified as an investment company if it issues units and primarily
invests in non-government units. An investment company will be classified as an open-end
investment company if it does not issue undivided interests in specified units (the defining
characteristic of unit investment trusts) and if it issues redeemable units. Registered investment
companies that are not or open-end investment companies are closed-end funds. Closed-end
funds are like open end except they are more like a company which sells its shares a single time
to the public under an initial public offering or "IPO". Subsequently, the fund's shares trade with
buyers and sellers of shares in the secondary market at a market-determined price (which is
likely not equal to net asset value). Except for some special transactions, the fund cannot
continue to grow in size by attracting more investor capital like an open-end fund may.

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 2) Exchange-traded funds

A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an open-
end investment company. ETFs combine characteristics of both mutual funds and closed-end
funds. ETFs are traded throughout the day on a stock exchange, just like closed-end funds, but at
prices generally approximating the ETF's net asset value. Most ETFs are index funds and track
stock market indexes. Shares are issued or redeemed by institutional investors in large blocks
(typically of 50,000). Most investors buy and sell shares through brokers in market transactions.
Because the institutional investors normally purchase and redeem in kind transactions, ETFs are
more efficient than traditional mutual funds (which are continuously issuing and redeeming units
and, to effect such transactions, continually buying and selling units and maintaining liquidity
positions) and therefore tend to have lower expenses.

Exchange-traded funds are also valuable for foreign investors who are often able to buy and sell
units traded on a stock market.

3) Equity funds

Equity funds, which consist mainly of stock investments, are the most common type of mutual
fund. Equity funds hold 50 percent of all amounts invested in mutual funds. Often equity funds
focus investments on particular strategies and certain types of issuers.

Growth vs. Value

Another distinction is made between growth funds, which invest in stocks of companies that
have the potential for large capital gains, and value funds, which concentrate on stocks that are
undervalued. Value stocks have historically produced higher returns; however, financial theory
states this is compensation for their greater risk. Growth funds tend not to pay regular dividends.
Income funds tend to be more conservative investments, with a focus on stocks that pay
dividends. A balanced fund may use a combination of strategies, typically including some level
of investment in bonds, to stay more conservative when it comes to risk, yet aim for some
growth.

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Index funds versus active management

An index fund maintains investments in companies that are part of major stock (or bond)
indexes, such as the S&P 500, while an actively managed fund attempts to outperform a relevant
index through superior stock-picking techniques. The assets of an index fund are managed to
closely approximate the performance of a particular published index. Since the composition of an
index changes infrequently, an index fund manager makes fewer trades, on average, than does an
active fund manager. For this reason, index funds generally have lower trading expenses than
actively managed funds, and typically incur fewer short-term capital gains which must be passed
on to shareholders. Additionally, index funds do not incur expenses to pay for selection of
individual stocks (proprietary selection techniques, research, etc.) and deciding when to buy,
hold or sell individual holdings. Instead, a fairly simple computer model can identify whatever
changes are needed to bring the fund back into agreement with its target index.

Certain empirical evidence seems to illustrate that mutual funds do not beat the market and
actively managed mutual funds under-perform other broad-based portfolios with similar
characteristics. Moreover, funds that performed well in the past are not able to beat the market
again in the future (shown by Jensen, 1968; Grinblatt and Sheridan Titman, 1989).

4) Funds of funds

Funds of funds (FoF) are mutual funds which invest in other mutual funds (i.e., they are funds
composed of other funds). The funds at the underlying level are often funds which an investor
can invest in individually, though they may be 'institutional' class shares that may not be within
reach of an individual shareholder). A fund of funds will typically charge a much lower
management fee than that of a fund investing in direct urities because it is considered a fee
charged for asset allocation services which is presumably less demanding than active direct
urities research and management. The fees charged at the underlying fund level are a real cost or
drag on performance but do not pass through the FoF's income statement (statement of
operations), but are usually disclosed in the fund's annual report, prospectus, or statement of
additional information. FoF's will often have a higher overall/combined expense ratio than that

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of a regular fund. The FoF should be evaluated on the combination of the fund-level expenses
and underlying fund expenses, as these both reduce the return to the investor.

Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same advisor), although
some invest in unaffiliated funds (those managed by other advisors) or both. The cost associated
with investing in an unaffiliated underlying fund may be higher than investing in an affiliated
underlying because of the investment management research involved in investing in fund advised
by a different advisor. Recently, FoFs have been classified into those that are actively managed
(in which the investment advisor reallocates frequently among the underlying funds in order to
adjust to changing market conditions) and those that are passively managed (the investment
advisor allocates assets on the basis of on an allocation model which is rebalanced on a regular
basis).

The design of FoFs is structured in such a way as to provide a ready mix of mutual funds for
investors who are unable to or unwilling to determine their own asset allocation model.

5) Hedge funds

Hedge funds in the United States are pooled investment funds with loose, if any, regulation,
unlike mutual funds. Some hedge fund managers are required to register with as investment
advisers under the Investment Advisers Act of 1940. The Act does not require an adviser to
follow or avoid any particular investment strategies, nor does it require or prohibit specific
investments. Hedge funds typically charge a management fee of 1% or more, plus a
“performance fee” of 20% of the hedge fund's profit. There may be a "lock-up" period, during
which an investor cannot cash in shares. A variation of the hedge strategy is the 130-30 fund for
individual investors.

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ETF: The Concept

An Exchange Traded Fund, as the name itself suggests; is a financial instrument, tradable on a
stock exchange, that invests in the stocks of an index in approximately the same proportion as
held in the index. An ETF is a hybrid financial product, a cross between a stock and a mutual
fund. Like a stock it can be traded on a stock exchange, and like a mutual fund it behaves like a
diversified portfolio. In many ways it is an index fund, with a few subtleties that put it in a
separate league. Unlike an open-ended index fund, where an investor purchases units from the
fund itself and to redeem them sells the units back to the fund and thereby expanding or
shrinking its corpus on each entry or exit from the fund, in an ETF is listed on an exchange
ensuring that the entry or exit of investors has no effect on the fund corpus. An ETF is transacted
through a broker and held in dematerialized form. An ETF is different from an Index Fund in
another manner. Availability of real-time quotes is another feature present in an ETF but absent
in an Index Fund where the previous days NAV is applied for buying or redeeming. This feature
makes the trading of the ETFs possible. Much like the units of a mutual fund the ETF too, is
divided into units called a "creation unit". The name emanates probably from the process through
which one comes to acquire these units. The ETF units when purchased from the fund house are
purchased by surrendering the underlying stocks in of the index the ETF tracks and thereby
'creating' the ETF unit. In short, they are similar to index mutual funds, but are traded more like a
stock. As their name implies, Exchange Traded Funds (ETFs) represent a basket of urities that
are traded on an exchange. An ETF is a hybrid financial product, a cross between a stock and a
mutual fund. Like a stock it can be traded on a stock exchange, and like a mutual fund it behaves
like a diversified portfolio. Unlike an open ended index fund, where an investor purchases units
from the fund itself and to redeem them sells the units back to the fund and thereby expanding or
shrinking its corpus on each entry or exit from the fund, in an ETF is listed on an exchange
ensuring that the entry or exit of investors has no effect on the fund corpus. An ETF is a
combination of an open-end and a close-end fund. Like any open-end fund, you can buy units
with the fund. But there is a difference. In an open-end fund, you will pay cash to buy units. In
the case of an ETF, you are required to provide the underlying shares to buy the units.

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If the demand of the ETFs in the markets soars, the ETF would start trading at a premium from
its intrinsic value, which should be equal in proportion to the index that it is charting. This
premium would make the buyers go to the fund house where they would have to redeem their
shares in the proportion held under each unit of the ETF. In case of redemption in the market, the
seller would get paid in cash and in case the fund units are taken to the issuer, the seller would
get paid in kind that is the underlying shares that make up the index. ETF trading also opens up
the flood gates for some more complex trading arrangements like arbitrage between the cash and
futures market or simply put - short selling. But there is a hitch as far as the Indian capital
markets is concerned: "shorting" is not allowed.

An ETF is basically created through an initial public offering (IPO) by the Asset management
companies in which only authorized participants (Aps), institutions, large investors are allowed
to participate. These investors exchange their portfolio of stocks and a cash component for ETFs
also known as creation units. These creation units are made of two components namely portfolio
deposit and cash component. Portfolio deposit consists of basket of shares that make up an index
and the cash component is the difference between the applicable NAV and the market value of
the portfolio deposit, which arises mainly due to transaction costs, rounding of shares and
incidental expenses involved. These units can be either held as investments or sold in the market
to the retail investors. ETFs can be also sold back to the mutual fund company but mutual funds
buy it at a heavy discount to encourage their selling on the exchanges. The net asset value (NAV)
of an ETF is the value of the underlying components of the benchmark index held by the ETF,
plus the accrued dividends, less the accrued management fee.

TYPES OF ETF IN INDIA

EQUITY BASED

Nifty BeEs: This is an index ETF that tracks the Nifty, which means that it holds the stocks in
the same proportion as they are present in the Nifty index. It has an expense ratio of 0.50% as on
29th May 2009.

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Junior Nifty BeEs: This is an index ETF that tracks the performance of the CNX Junior Nifty
index. It has an expense ratio of 1%.

Bank BeEs: This is an index ETF that tracks the performance of the CNX Bank Nifty. It has an
expense ratio of 0.50% annualized.

PSU Bank BeEs: This is an index ETF that tracks the performance of CNX PSU Bank Index. It
has an expense ratio of 0.75%.

Shariah BeEs: This is an index ETF that tracks the CNX Nifty Shariah index. The expense ratio
of this ETF is 1.00% annualized.

S&P CNX Nifty UTI Notional Depository Receipts Scheme (SUNDER) ETF: This is an Index
ETF that tracks the S&P CNX Nifty.

Kotak PSU Bank ETF: This is an index ETF that aims to provide returns corresponding to the
CNX PSU Index. It has an expense ratio of 0.65%.

Reliance Bank Exchange Traded Fund: This is an index ETF that tracks the CNX bank index.
It has an expense ratio of 0.80% up to Rs. 500 crore of assets, and 0.70% beyond that.

Quantum Index Fund QNIFTY ETF: This is an index ETF that tracks the performance of the
CNX Nifty. It has an expense ratio of 0.75%.

India ETF: Liquid

Liquid BeEs: Liquid BeEs invests in a basket of call money, short-term government securities
and money market instruments of short maturities while maintaining safety and liquidity. It has
an expense ratio of 0.60% annualized.

How ETFs are traded

The trading of the ETF is based on a well-known mechanism called arbitrage. But first, let us see
how one can buy an ETF. There are two ways in which one can buy an ETF. One is through the

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market and the other is through the fund house that has issued the ETF. Now for the pricing
mechanism: if the demand of the ETFs in the markets soars, the ETF would start trading at a
premium from its intrinsic value, which should be equal in proportion to the index that it is
charting. This premium would make the buyers go to the fund house where they would have to
redeem their shares in the proportion held under each unit of the ETF. Such units that are bought
directly from the fund house are called "creation units". But usually the lot size in which one can
buy creation units is so high that only an authorized participant (market maker) or institutional
investors may have the wherewithal to buy these. In such case the retail investor would have to
go to the market itself to buy the units of the ETF, the decision in turn depending on the
expectations of the future price movements of the ETF. In case of redemption in the market, the
seller would get paid in cash and in case the fund units are taken to the issuer, the seller would
get paid in kind that is the underlying shares that make up the index. ETF trading also opens up
the flood gates for some more complex trading arrangements like arbitrage between the cash and
futures market or simply put - short selling. But there is a hitch as far as the Indian capital
markets is concerned: "shorting" is not allowed. As a proxy, one can borrow the units but that
mechanism is not very efficient, as the cost of borrowing happens to range between 12 to 18 per
cent depending on one's creditworthiness. Given below is a chart that explains the trading
mechanism.

Structure of ETF

ETFs offer public investors an undivided interest in a pool of units and other assets and thus are
similar in many ways to traditional mutual funds, except that shares in an ETF can be bought and
sold throughout the day like stocks on a units exchange through a broker-dealer. Unlike
traditional mutual funds, ETFs do not sell or redeem their individual shares at net asset value, or
NAV. Instead, financial institutions purchase and redeem ETF shares directly from the ETF, but
only in large blocks, varying in size by ETF from 25,000 to 200,000 shares, called "creation
units". Purchases and redemptions of the creation units generally are in kind, with the
institutional investor contributing or receiving a basket of units of the same type and proportion
held by the ETF, although some ETFs may require or permit a purchasing or redeeming
shareholder to substitute cash for some or all of the units in the basket of assets.[4]

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The ability to purchase and redeem creation units gives ETFs an arbitrage mechanism intended
to minimize the potential deviation between the market price and the net asset value of ETF
shares. Existing ETFs have transparent portfolios, so institutional investors will know exactly
what portfolio assets they must assemble if they wish to purchase a creation unit, and the
exchange disseminates the updated net asset value of the shares throughout the trading day,
typically at 15-ond intervals.

If there is strong investor demand for an ETF, its share price will (temporarily) rise above its net
asset value per share, giving arbitrageurs an incentive to purchase additional creation units from
the ETF and sell the component ETF shares in the open market. The additional supply of ETF
shares increases the ETF's market capitalization and reduces the market price per share, generally
eliminating the premium over net asset value. A similar process applies when there is weak
demand for an ETF and its shares trade at a discount from net asset value.

Most ETFs are structured as open-end management investment companies (the same structure
used by mutual funds and money market funds), although a few ETFs, including some of the
largest ones, are structured as unit investment trusts. ETFs structured as open-end funds have
greater flexibility in constructing a portfolio and are not prohibited from participating in urities
lending programs or from using futures and options in achieving their investment objectives.

Either is an index fund, or discloses each business day on its publicly available web site the
identities and weighting of the component units and other assets held by the fund.

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Although ETFs are legally classified as open-end companies or Unit Investment Trusts (), they
differ from traditional open-end companies and in the following respects:

 ETFs do not sell individual shares directly to investors and only issue their shares in large
blocks (blocks of 50,000 shares, for example) that are known as "Creation Units."
 Investors generally do not purchase Creation Units with cash. Instead, they buy Creation
Units with a basket of units that generally mirrors the ETF’s portfolio. Those who
purchase Creation Units are frequently institutions.
 After purchasing a Creation Unit, an investor often splits it up and sells the individual
shares on a secondary market. This permits other investors to purchase individual shares
(instead of Creation Units).
 Investors who want to sell their ETF shares have two options: (1) they can sell individual
shares to other investors on the secondary market, or (2) they can sell the Creation Units
back to the ETF. In addition, ETFs generally redeem Creation Units by giving investors
the units that comprise the portfolio instead of cash. So, for example, an ETF invested in
the stocks contained in the Dow Jones Industrial Average (DJIA) would give a redeeming
shareholder the actual units that constitute the DJIA instead of cash.

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  Because of the limited redeem-ability of ETF shares, ETFs are not considered to be—and
may no call themselves—mutual funds.

An ETF, like any other type of Investment Company, will have a prospectus. All investors that
purchase Creation Units receive a prospectus. Some ETFs also deliver a prospectus to secondary
market purchasers. ETFs that do not deliver a prospectus are required to give investors a
document known as a Product Description, which summarizes key information about the ETF
and explains how to obtain a prospectus. All ETFs will deliver a prospectus upon request. ETFs
do not use profiles. ETFs that are legally structured as open-end companies (but not those that
are structured as ) must also have statements of additional information (SAIs). Open-end ETFs
(but not UIT ETFs) must provide shareholders with annual and semi-annual reports.

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Applications of ETFs

 Efficient Trading: ETFs provide investors a convenient way to gain market

exposure viz. an index that trades like a stock. In comparison to a stock, an
investment in an ETF index product provides a diversified exposure to the
market. Depending on the index, investors may obtain exposure to countries/
markets or tors.

 Equalizing Cash: Investors with idle cash in their portfolios may want to invest
in a product tied to a market benchmark like an index as a temporary investment
before deciding which stocks to buy or waiting for the right price.

 Managing Cash Flows: Investment managers who see regular inflows and
outflows may use ETFs because of their liquidity and their ability to represent the
market.

 Diversifying Exposure: If an investor is not sure about which particular stock to

buy but likes the overall tor, investing in shares tied to an index or basket of
stocks provides diversified exposure and reduces stock specific risk.

 Filling Gaps: ETFs tied to a tor or industry may be used to gain exposure to new
and important Sectors. Such strategies may also be used to reduce an overweight
or increase an underweight tor.

 Shorting or Hedging: Investors who have a negative view on a market segment

or specific tor may want to establish a short position to capitalize on that view.
ETFs may be sold short against long stock holdings as a hedge against a decline
in the market or specific tor.

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Advantages of Exchange-Traded Funds

ETFs generally provide the easy diversification, low expense ratios, and tax efficiency of index
funds, while still maintaining all the features of ordinary stock, such as limit orders, short selling,
and options. Because ETFs can be economically acquired, held, and disposed of, some investors
invest in ETF shares as a long-term investment for asset allocation purposes, while other
investors trade ETF shares frequently to implement market timing investment strategies. Among
the advantages of ETFs are the following:

 Lower costs - ETFs generally have lower costs than other investment products because
most ETFs are not actively managed and because ETFs are insulated from the costs of
having to buy and sell urities to accommodate shareholder purchases and redemptions.
ETFs typically have lower marketing, distribution and accounting expenses, and most
ETFs do not have 12b-1 fees.

 Buying and selling flexibility - ETFs can be bought and sold at current market prices at
any time during the trading day, unlike mutual funds and unit investment trusts, which
can only be traded at the end of the trading day. As publicly traded urities, their shares
can be purchased on margin and sold short, enabling the use of hedging strategies, and
traded using stop orders and limit orders, which allow investors to specify the price
points at which they are willing to trade.

 Tax efficiency - ETFs generally generate relatively low capital gains, because they
typically have low turnover of their portfolio units. While this is an advantage they share
with other index funds, their tax efficiency is further enhanced because they do not have
to sell urities to meet investor redemptions.

 Market exposure and diversification - ETFs provide an economical way to rebalance

portfolio allocations and to "equitize" cash by investing it quickly. An index ETF

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 inherently provides diversification across an entire index. ETFs offer exposure to a
diverse variety of markets, including broad-based indexes, broad-based international and
country-specific indexes, industry tor-specific indexes, bond indexes, and commodities.
 Transparency - ETFs, whether index funds or actively managed, have transparent
portfolios and are priced at frequent intervals throughout the trading day.

Some of these advantages derive from the status of most ETFs as index funds.

Why should an investor invest in Gold ETF

 No worry on adulteration
 Gold provides diversification to the portfolio
 Gold is considered as a Global Asset Class
 Gold is used as a Hedge against Inflation
 Gold is considered to be less volatile compared to equities
 Held in Electronic Form
 Store of value
 Extremely Liquid

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 1.3 COMPANY PROFILE

Gold ETF Funds in India

1) Benchmark Gold ETF (GOLDBEES) lists on NSE

Benchmark Asset Management Company Pvt. Ltd. (BAMC) is a SEBI registered Asset
Management Company launched in June 2001. BAMC is the first and only asset management
company in India with a primary focus on indexing and using quantitative techniques in creating
innovative products. Benchmark is run and co-promoted by professionals with a long experience
in the Indian and International Financial Markets. The trading unit for BeES has been fixed at
one gram with a tick size of one paisa. This instrument offers only trading and holding it in
DEMAT account and not the physical delivery of gold. "Gold BeES, like any other mutual fund
instrument, would attract common men to save in small quantity with a minimum possible
monthly balance of Rs 1000 (roughly equivalent to the price of one gram gold BeES) which, if
continued, may accumulate over a period of time to give handsome amount on conversion.

INVESTMENT OBJECTIVE:
The investment objective of Gold BeES is to provide returns that, before expenses, closely
correspond to the returns provided by domestic price of gold through physical gold.

2) Kotak Gold Exchange Traded Fund

Investment Objective: the investment objective of the scheme is to generate returns that are in
line with the return on investment in physical gold, subject to tracking errors.

Type of fund: Kotak Gold ETF is open ended fund. The ongoing of the scheme commenced
from August 8, 2007. The fund creates/redeem the scheme units in large size known as creation

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unit. The value of unit is 1000 gram of physical gold or multiple thereof called as the portfolio
deposit and a cash component which will be exchanged for corresponding number of units. The
portfolio deposit and cash component may change from time to time and will be announced by
fund on its website.

3) Reliance Gold Exchange Traded Fund

Reliance Gold Exchange Traded Fund (RGETF) is an open ended Gold Exchange Traded Fund
which will track the performance of Gold Bullion. The units issued under the scheme will
represent the value of gold held in the scheme. It is designed to provide returns that, before
expenses, closely correspond to the returns provided by domestic price of Gold. Gold ETF is a
urity listed on the stock exchange available for trading with an intention to offer investors a
means of participating in the gold bullion market without the necessity of taking physical
delivery of gold.

Product Features Type: An open-ended Gold Exchange Traded Fund that tracks the domestic
prices of gold through investments in physical Gold.

Investment Objective: The investment objective is to seek to provide returns that closely
correspond to returns provided by price of gold through investment in physical Gold (and Gold
related urities as permitted by Regulators from time to time). However, the performance of the
scheme may differ from that of the domestic prices of Gold due to expenses and or other related
factors.

Options: Only Dividend Pay-out Option

4) Quantum Gold Exchange Traded Fund

The Quantum Gold Fund (QGF) seeks to offer investors an innovative, cost efficient and ure way
to invest in gold. The QGF is an Open Ended Fund, which is listed on the National Stock
Exchange (NSE) in the form of an Exchange Traded Fund (ETF) tracking domestic prices of

20
gold. The scheme enables investors to participate in the gold bullion market without taking
physical delivery of gold, and to buy and sell units just like a stock on any of the recognized
exchanges where it is listed..

Investment Objective
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.

Scheme Details
Each unit of the QGF will be approximately equal to price of half (½) gram of Gold. In the New
Fund Offer (NFO) period, the Fund will accept cheque or demand draft. The minimum amount
of investment is Rs.5,000/- and in multiples ofRs.1,000/-thereafter.
After the NFO, the QGF units are listed on the NSE and investors can buy or sell units just like
any equity share. Investors can buy or sell QGF units through member-brokers on the NSE. The
minimum quantity for buying and selling would be at least 1 unit.

5) UTI GOLD ETF GOLDSHARE

January 14, 2003 is when UTI Mutual Fund started to pave its path following the vision of UTI
Asset Management Co. Ltd. (UTIAMC), which was appointed by UTI Trustee Co, Pvt. Ltd. for
managing the schemes of UTI Mutual Fund and the schemes transferred/migrated from the
erstwhile Unit Trust of India.
UTIAMC provides professionally managed back office support for all business services of UTI
Mutual Fund in accordance with the provisions of the Investment Management Agreement, the
Trust Deed, the SEBI (Mutual Funds) Regulations and the objectives of the schemes. State-of-
the-art systems and communications are in place to ensure a seamless flow across the various
activities undertaken by UTIMF.

Since February 3, 2004, UTIAMC is also a registered portfolio manager under the SEBI
(Portfolio Managers) Regulations, 1993 for undertaking portfolio management services.

21
UTIAMC also acts as the manager and marketer to offshore funds through its 100 % subsidiary,
UTI International Limited, registered in Guernsey, Channel Islands.

6) SBI GETS ETF: The investment objective of the fund is to seek to provide returns that

Closely correspond to returns provided by price of gold through investment in physical Gold.
However the performance of the scheme may differ from that of the underlying asset due to
tracking error

ALLOTMENT EXPENSE ENTRY EXIT NAV(22/3/2011

COMPANY DATE RATIO LOAD LOAD )

GOLDBEES 8/3/2007 1% NIL NIL 2,033.07

GOLDSHARE 1/3/2007 1% NIL NIL 2,032.44

KOTAKGOLD 20/06/2007 1% NIL NIL 2,031.69

RELIANCEGOL
D 15/10/2007 1% NIL NIL 1,977.99

SBIGETS 30/03/2009 1% NIL NIL 2,070.45

QUANTUMGOL
D 24/1/2008 1% NIL NIL 1,010.84

1.4 PROBLEM FORMULATION

22
The research problems formulated are broadly summed up as the following points:

 What is the Return on Investment of Gold ETFs in India?

 What is the Standard Deviation among major Gold ETFs in India?

 What is the measure of Skewness of different Gold ETFs in India?

 What is the Coefficient of Correlation between the Gold ETF and Nifty Index Return?

 How is Gold ETF different from Mutual Funds?

 What is the level of customer awareness among consumers regarding investment avenues
in Gold ETFs?

1.5 SCOPE OF THE STUDY

The scope of the study is in the context of India and the Gold ETFs that are currently being
provided by the various AMC (Asset Management Companies).

23
 2.0 LITERATURE REVIEW

Review of literature discusses the research work being done on the issues relating to exchange
traded fund. To understand the exchange traded Funds an attempt is made to review some
literature, which is relevant to the study. For this purpose journals and articles written on
Exchange Traded Funds are being studied.

Gerasimos Georglou Rompotis (2005) compared ETFs and Index Funds performance during
the time period from 4/3/2001 to 11/20/2002, using a set of 16 ETFs and Index Funds that in
pairs track the same indices. He estimated their average return and mean risk level, finding that
they substantially produce quite similar results. He regressed ETFs and index funds return on the
return of the underlying indices. The study pointed out that ETFs and Index Funds don't achieve
any excess return than their benchmarks. He computed ETFs and index funds average tracking
error, confirming their analogous tracking ability. Finally, he presented ETFs and index funds
major sources of costs and, regressing average return on expense ratio, and observed a significant
positive relation of ETFs with their expense ratio. This relation is very shortly verified in index
funds.

William A. Birdthistle (2007) studied the Exchange Traded Funds. He studied that Exchange-
traded fund, a unit that provides the diversification of a mutual fund but trades on an exchange
like a stock. Using a novel pricing mechanism that harnesses the utility of arbitrage, ETFs
provide investors with accuracy, efficiency, tax advantages, and a range of investment choices,
while insulating investors from the structural problems with mutual funds. This article argues
that the mutual fund industry and its recent spate of dramatic scandals contributed to the growth
of ETFs and concludes that mutual funds offer vivid warnings of the conflicts of interest that
may come to afflict the ETF industry as it continues to grow.

24
Jennifer c. Haung (2008) studied - are ETF’S replacing the Mutual Funds? The answer is,
Flows to an Open-Ended Mutual Fund (OEF) can significantly hamper its subsequent
performance due to flow-induced trading costs. An Exchange-Traded Fund (ETF)is designed not
to have this cost and hence is advertised as the more efficient index vehicle. He found that the
overall transaction costs incurred for any given trading needs are actually identical. What differs,
is the allocation and the reporting of those transaction costs - they are equally shared by all
investors in an OEF and reduce the reported OEF performance, whereas, they are incurred only
by those ETF investors with liquidity needs and do not affect the reported ETF performance.
Thus, the OEF structure can be viewed as providing a partial insurance against individual
liquidity needs and is actually beneficial for risk averse investors. The research empirically
confirmed that the growth of ETFs is more concentrated in selected indexes.

Rompotis (2009) was the first to compare the performance of active ETFs with passive ETFs.
Therefore we will give a brief review of the most significant papers in the field of performance
evaluation of etf and some major analyses on ETFs. The existing literature can be divided in
several distinctive subjects. Some studies compare active and passive management and they,
except Rompotis, focus primarily on mutual funds. There are studies which investigate index
mutual funds and (passive) ETFs . Furthermore, some research focuses on the characteristics of
ETFs or analyses their performance with their corresponding benchmark or the market index.

W. Floris Vossestein(January 2010)studied – The Rise of the Active Exchange Traded Fund .
This thesis analyses the performance of actively-managed Exchange Traded Funds. Active ETFs
are a new phenomenon and they were only incepted in April 2008. Besides pioneering research
on this new product this thesis adds to the existing literature on the ongoing debate about active
vs. passive management. The sample covers the period May 2008 till October 2009 and five
active ETFs are examined. The empirical results uncover that, as endorsed by results from the
mutual fund industry, active ETFs do underperform both their corresponding passive ETFs and
their underlying benchmarks. The risk-adjusted performance, as expressed by Jensen’s alpha,
indicates no significant excess returns for both active and passive ETFs, which is an expectable

25
conclusion for the latter, but not for the active ETFs, who aim to beat the market. A rating
performance analysis shows that active ETFs have a worse performance than their passive
equivalents; however these results are not unanimous. Finally, the tracking error of active ETFs
is, as expected, higher than the tracking error of its passive counterparts. Actively-managed ETFs
do not try to replicate the performance of their underlying benchmark.

26
 3.1 OBJECTIVES OF THE STUDY

The objectives of the study are as follows:

1) To provide an insight into the concept of Gold ETF and to study the benefits of investing
in them.

2) To analyze and compare the financial performance of various Gold ETF in India and their
relation to market index movement.

3) To ascertain the difference between Gold ETFs and Mutual Funds.

4) To conduct a primary study to find out the awareness of the Gold ETF among investors
and to ascertain the investment behavior relating to Gold ETF and other investment
options in India.

27
 3.2 RESEARCH DESIGN

Descriptive Research

The type of research design selected is Descriptive Research Design. It describes phenomena as
they exist. Descriptive studies generally take raw data and summarize it in a useable form. It can
also be qualitative in nature if the sample size is small and data are collected from
questionnaires, interviews or observations. It is also known as statistical research; it describes
data and characteristics about the population or phenomenon being studied.

3.3 SAMPLING FRAMEWORK

Convenience sampling is a type of non probability sampling which involves the sample being
drawn from that part of the population which is close to hand. That is, a sample population
selected because it is readily available and convenient. The respondents comprise persons
familiar to the surveyor.

SAMPLE SIZE: 50 Respondents

SOURCE OF DATA COLLECTION

PRIMARY DATA: The primary data was collected from the sample through sample survey
with the help of questionnaire analysis.

SECONDARY DATA: The secondary data was collected through the National Stock Exchange
website (http://www.nseindia.com) database for the past script price of the various Gold ETFs
studied in this project and the index prices of NIFTY.

28
ETF’S COMAPARED TO MUTUAL FUNDS

How ETFs is different from Traditional Mutual Funds

Since ETFs trade like stocks, they offer a degree of flexibility unavailable with traditional mutual
funds. Specifically, investors can trade ETFs intra-day, monitor price discovery throughout the
trading day and employ the usual arsenal of order types such as limit and stop loss orders-
available in single stock trading. In a mutual fund, by comparison, investors can purchase
traditional mutual funds only at the fund's NAV, which is published at the end of each trading
day. (Typically, orders to buy or sell mutual fund shares must be placed at least an hour or two
prior to market close).

This difference gives rise to an important advantage of ETFs over traditional mutual funds.
Because they are relatively liquid, ETFs are immediately tradable; therefore, the risk of price
movement between investment decision and time of trade is substantially less when ETFs are
used in lieu of traditional funds. For example, suppose an investor decides to purchase index
exposure at 10.00 A.M. via a traditional mutual fund and during the balance of the trading day,
suppose the index gains 1%. The investor will miss the opportunity, as he will be able to
purchase the fund only at the day's closing NAV.

The ability to reduce the time between the investment decision and the trade execution is critical,
more so in a volatile market. Delaying a purchase decision until next day's closing price when a
decision was made the previous evening introduces slippage costs that increase with the range of
price moves during the trading day.

The redemption process is also different for ETFs and mutual funds. While ETFs are redeemed
in-kind (by exchanging basket of shares) as opposed to cash, mutual fund units are redeemed in
cash, as the fund must sell shares in the open market to meet redemptions. closed-end funds,
which also trade on exchanges, are different from ETFs as they have a static amount of shares

29
outstanding. For that reason, a close-ended fund may trade at a premium or a discount to its net
asset value for a protracted period of time. (The vast majority, however, trade at a discount.)
Exchange-traded funds, on the other hand, trade close to the net asset value of the underlying
portfolio since new ETF shares can be created and redeemed.
ETF Comparison - While similar to an index mutual fund, 
ETFs differ from mutual funds in significant ways.

Index 
Individual 
Attribute ETF Mutual 
Stock
Fund
Diversification Yes Yes No

Traded throughout the day Yes No Yes

Can be bought on margin Yes No Yes

Can be sold short Yes No Yes

Tracks an index or tor Yes Yes No

Tax efficient as turnover is low Yes Possibly No

Low Expense Ratio Yes Sometimes Not a factor

Trade at any brokerage firm Yes No Yes

Comparison of ETFs with other mutual funds

In essence, ETFs trade like stocks and therefore offer a degree of flexibility unavailable with
traditional mutual funds. Specifically, investors can trade ETFs throughout the trading day as in
stocks. In comparison, in a traditional mutual fund, investors can purchase units only at the
fund’s NAV, which is published at the end of each trading day. In fact, investors cannot purchase
ETFs at the closing NAV. This difference gives rise to an important advantage of ETFs over
traditional funds: ETFs are immediately tradable and consequently, the risk of price differential
between the time of investment and time of trade is substantially less in the case of ETFs.

ETFs are cheaper than traditional mutual funds and index funds in terms of fees. However, while

30
investing in an ETF, an investor pays a commission to the broker. The tracking error of ETFs is
generally lower than traditional index funds due to the “in-kind” creation / redemption facility
and the low expense ratio. This “in-kind” creation / redemption facility ensures that long-term
investors do not suffer at the cost of short-term investor activity.

ETFs can be bought / sold through trading terminals anywhere across the country. Table No. 1
presents a comparative view ETFs vis-à-vis other funds.

ETFs Vs. Open Ended Funds Vs. Close Ended Funds

Open Ended
Parameter Closed Ended Fund Exchange Traded Fund
Fund
Fund Size Flexible Fixed Flexible
NAV Daily Daily Real Time
Liquidity
Fund itself Stock Market Stock Market / Fund itself
Provider
At NAV plus Significant Premium / Very close to actual NAV of
Sale Price
load, if any Discount to NAV Scheme
Through Exchange where Through Exchange where
Availability Fund itself
listed listed / Fund itself.
Portfolio
Monthly Monthly Daily/Real-time
Disclosure
Equitising Cash, Hedging,
Uses Equitising cash -
Arbitrage
Intra-Day
Not possible Expensive Possible at low cost
Trading

4.0 DATA ANALYSIS AND INTERPRETATIONS

STANDARD DEVIATION

31
Standard deviation is a widely used measurement of variability or diversity used in statistics and
probability theory. It shows how much variation or "dispersion" there is from the "average"
(mean, or expected/budgeted value). A low standard deviation indicates that the data points tend
to be very close to the mean, whereas high standard deviation indicates that the data are spread
out over a large range of values.

Technically, the standard deviation of a statistical population, data set, or probability distribution
is the square root of its variance. It is algebraically simpler though practically less robust than the
average absolute deviation.[1][2] A useful property of standard deviation is that, unlike variance, it
is expressed in the same units as the data. Note, however, that for measurements with percentage
as unit, the standard deviation will have percentage points as unit.

COMPANY 2 YEAR
GOLDBEES 192.24
GOLDSHARE 190.51
KOTAKGOLD 192.07
QUANTUMGOLD 189.54
RELIANCEGOLD 185.32
SBIGETS 184.96

32
 STANDARD DEVIATION(2YR)
194

192

190

188

186

184

182

180
GOLDBEES GOLDSHARE KOTAKGOLD QUANTUMGOLD RELIANCEGOLD SBIGETS

Interpretation : From the above table and graph, we find that the measure of standard deviation
is varying among the different Gold ETFs and among the companies that have been selected
above, the standard deviation is the lowest for Reliance Gold ETF and SBI Gold ETF, implying
that the degree of variation is lowest from among the selected companies. This is very low
compared to the standard deviation of the market index (NIFTY) which is around 702.89 for the
same period.

33
SKEWNESS

In probability theory and statistics, skewness is a measure of the asymmetry of the probability
distribution of a real-valued random variable. The skewness value can be positive or negative, or
even undefined. Qualitatively, a negative skew indicates that the tail on the left side of the
probability density function is longer than the right side and the bulk of the values (including the
median) lie to the right of the mean. A positive skew indicates that the tail on the right side is
longer than the left side and the bulk of the values lie to the left of the mean. A zero value
indicates that the values are relatively evenly distributed on both sides of the mean, typically but
not necessarily implying a symmetric distribution.

Negative skew: The left tail is longer; the mass of the distribution is concentrated on the right of
the figure. It has relatively few low values. The distribution is said to be left-skewed.
Positive skew: The right tail is longer; the mass of the distribution is concentrated on the left of
the figure. It has relatively few high values. The distribution is said to be right-skewed.

For univariate data Y1, Y2, ..., YN, the formula for skewness is:

COMPANY 2 YEAR
GOLDBEES 0.070528
GOLDSHARE 0.09919
KOTAKGOLD 0.073075
QUANTUMGOLD 0.078684
RELIANCEGOLD 0.080445
SBIGETS 0.00054

34
 SKEWNESS(2YR)
0.1
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0

Interpretation: By knowing which way data is skewed, one can better estimate whether a
given (or future) data point will be more or less than the mean .Most advanced economic
analysis models study data for skewness and incorporate this into their calculations. Skewness
risk is the risk that a model assumes a normal distribution of data when in fact data is skewed to
the left or right of the mean. From the above data, we find that the direction of skewness or
distribution of returns is more towards the higher value of the range.

35
Return on Investment

A performance measure used to evaluate the efficiency of an investment or to compare the

efficiency of a number of different investments. To calculate ROI, the benefit (return) of an
investment is divided by the cost of the investment; the result is expressed as a percentage or a
ratio. 

The return on investment formula:

In the above formula "gains from investment", refers to the proceeds obtained from selling the
investment of interest.  Return on investment is a very popular metric because of its
versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are
other opportunities with a higher ROI, then the investment should be not be undertaken.

36
 COMPANY 1 YEAR(2010-11)
GOLDBEES 23.02
GOLDSHARE 23.08
KOTAKGOLD 23.01
QUANTUMGOLD 23.27
RELIANCEGOLD 23.37
SBIGETS 23.12

RETURN(1YR)

23.4

23.3

23.2

23.1

23

22.9

22.8
GOLDBEES GOLDSHARE KOTAKGOLD QUANTUMGOLD RELIANCEGOLD SBIGETS

Interpretation: From the above data we find that the return provided by almost all the Gold ETF
schemes are comparable to each other, with better returns generated in comparison to debt
securities.

37
 COMPANY 2 YEAR(2009-11)
GOLDBEES 34.88
GOLDSHARE 35.46
KOTAKGOLD 34.81
QUANTUMGOLD 34.86
RELIANCEGOLD 35.23
SBIGETS 42.7

GOLD ETF RETURN(2 YR)

SBIGETS 42.7

RELIANCEGOLD 35.23

QUANTUMGOLD 34.86

KOTAKGOLD 34.81

GOLDSHARE 35.46

GOLDBEES 34.88

Interpretation: From the above data, we find that most of the Gold ETFs have similar returns
except SBI GETS which provided a higher return on investment as compared to similar such
schemes. The return provided is significantly higher to the return provided by debt instruments
such as bonds, debentures and Fixed Deposits, etc.

38
CORRELATION COEFFICIENT

The most familiar measure of dependence between two quantities is the Pearson product-moment
correlation coefficient, or "Pearson's correlation." It is obtained by dividing the covariance of the
two variables by the product of their standard deviations. Karl Pearson developed the coefficient
from a similar but slightly different idea by Francis Galton.[4]

The population correlation coefficient ρX,Y between two random variables X and Y with expected
values μX and μY and standard deviations σX and σY is defined as:

where E is the expected value operator, cov means covariance, and, corr a widely used
alternative notation for Pearson's correlation.

The correlation coefficient, denoted by r, is a measure of the strength of the straight-line or linear
relationship between two variables. The correlation coefficient takes on values ranging between
+1 and -1. The following points are the accepted guidelines for interpreting the correlation
coefficient:

COMPANY 2 YEAR
GOLDBEES 0.832371562
GOLDSHARE 0.83822861
KOTAKGOLD 0.831774517
QUANTUMGOLD 0.832376754
RELIANCEGOLD 0.831615538
SBIGETS 0.86526249

39
 CORRELATION COEFFICIENT(2 YR)
0.87

0.86

0.85

0.84

0.83

0.82

0.81
GOLDBEES GOLDSHARE KOTAKGOLD QUANTUMGOLD RELIANCEGOLD SBIGETS

Interpretation: The coefficient of variation represents the ratio of the standard deviation to the
mean, and it is a useful statistic for comparing the degree of variation from one data series to
another, even if the means are drastically different from each other. In the investing world, the
coefficient of variation allows you to determine how much volatility (risk) you are assuming in
comparison to the amount of return you can expect from your investment. In simple language,
the lower the ratio of standard deviation to mean return, the better your risk-return tradeoff.
In the case of above data, we find a positive degree of correlation between the Index
return(NIFTY) and the Gold ETFs return, while also finding that the correlation coefficient of
SBI GETS was higher than other Gold ETF schemes, indicating that with the positive movement
of index, the Gold ETF return would also be positive.

40
BETA ANALYSIS

The Beta (β) of a stock or portfolio is a number describing the relation of its returns with that of
the financial market as a whole. An asset has a Beta of zero if its returns change independently of
changes in the market's returns. A positive beta means that the asset's returns generally follow
the market's returns, in the sense that they both tend to be above their respective averages
together, or both tend to be below their respective averages together. A negative beta means that
the asset's returns generally move opposite the market's returns: one will tend to be above its
average when the other is below its average.

The beta coefficient is a key parameter in the capital asset pricing model (CAPM). It measures
the part of the asset's statistical variance that cannot be removed by the diversification provided
by the portfolio of many risky assets, because of the correlation of its returns with the returns of
the other assets that are in the portfolio. Beta can be estimated for individual companies using
regression analysis against a stock market index.

where ra measures the rate of return of the asset, rp measures the rate of return of the portfolio,
and cov(ra,rp) is the covariance between the rates of return. The portfolio of interest in the CAPM
formulation is the market portfolio that contains all risky assets, and so the rp terms in the
formula are replaced by rm, the rate of return of the market.

The beta coefficient was born out of linear regression analysis. It is linked to a regression
analysis of the returns of a portfolio (such as a stock index) (x-axis) in a specific period versus
the returns of an individual asset (y-axis) in a specific year. The regression line is then called the
Security characteristic Line (SCL).

αa is called the asset's alpha and βa is called the asset's beta coefficient. Both coefficients have an
important role in Modern portfolio theory.

41
 COMPANY BETA
GOLDBEES -0.02
GOLDSHARE -0.02
KOTAKGOLD -0.03
QUANTUMGOLD -0.05
RELIANCEGOLD -0.04
SBIGETS 0.11

BETA ANALYSIS

0.12

0.1

0.08

0.06

0.04

0.02

0
GOLDBEES GOLDSHARE KOTAKGOLD QUANTUMGOLD RELIANCEGOLD SBIGETS
-0.02

-0.04

-0.06

Interpretation: The above graph shows that the majority of the Gold ETF schemes have
negative Beta value indicating that they have an inverse relation to the stock market index
(NIFTY) movement, except for the SBI GETS scheme which shows a positive value of Beta
indicating that it has a direct proportionate relation to the index return.

42
GRAPHICAL ANALYSIS

Do you Invest money?

120

100

80

60

40

20

0
YES NO

Interpretation: The above graph shows that all the sampled population invests their savings into
some investment options according to their goals and objectives.

Are you aware about Gold ETF?

80
70
60
50
40
30
20
10
0
YES NO

Interpretation: The above graph shows that the majority (around 80 percent) of the sampled
population are not aware about the investment option of Gold ETF.

43
 Do you invest in Gold ETF?
100
90
80
70
60
50
40
30
20
10
0
YES NO

Interpretation: The above graph shows the investment attitude of investors towards Gold ETF
schemes, it illustrates that most of them do not invest in Gold ETF schemes, this is primarily due
to the lack of awareness about such schemes among the prospective investors.

Reasons for investing in Gold ETF

Others
9% Less Volatility
18%
Portfolio Diversification
9%
Tradable Better Return
9% 9%

Electronic Form
9%

Safety
36%

Interpretation: The above graph illustrates the investment reasons for investing in Gold ETF.
Most of the investors prefer Gold ETF schemes due factors such as 1) Safety, and 2) Less
Volatility.

44
 Which Gold ETF do you invest in?
OTHERS GOLDBEES
18% 18%

KOTAK GETF
9%

SBI GETS
27% UTI GOLDSHARE
27%

Interpretation: The above graph shows the particular Gold ETF in which the investor invests in,
from the above data, we find that majority of the investor invest in UTI Gold ETF Goldshare,
SBI Gold ETF, followed by Benchmark Gold Bees, and other ETF offered by other Asset
Management Companies(AMCs).

Investment Objective

40

35

30

25

20

15

10

0
Safety Low Risk Return High Risk Return Others

Interpretattion: The above graph shows that the investors primary investment objective is
Safety and Low Risk Return.

45
INVESTMENT OPTIONS PREFERENCE

FIXED DEPOSIT PREFERENCE

50
45
40
35
30
25
20
15
10
5
0
A B C D E

Interpretation: The above graph shows that majority of the investors have a preference for
Fixed Deposit products on a scale of 1-5 for measurement of investment preference among
various investment alternatives.

GOLD ETF PREFERENCE

50
45
40
35
30
25
20
15
10
5
0
A B C D E

Interpretation: The above graph shows that the majority of investors do not prefer Gold ETF
schemes, primarily either due to non awareness or lack of knowledge of investment mechanism,
etc.

46
 DEBT SECURITY PREFERENCE
A
E 30%
10%
D
20%

C
10% B
30%

Interpretation: The above graph shows that the majority of investors prefer Debt Security
schemes.

PHYSICAL GOLD PREFERENCE

40

35

30

25

20

15

10

0
A B C D E

Interpretation: The above graph shows that the majority of investors do not prefer directly
investing in physical gold.

47
 Mutual Fund Preference
A
D E 20%
10% 10%

C
10%

B
50%

Interpretation: The above graph shows that the majority of investors prefer investing in Mutual
Funds of different types depending upon the scheme and the investor’s risk bearing capacity.

EQUITY PREFERENCE

30

25

20

15

10

0
A B C D E

Interpretation: The above graph shows that the majority of investors prefer investing in Equity
shares of different types of companies depending upon the company, industry profile and risks
involved.

48
 REAL ESTATE PREFERENCE

30

25

20

15

10

0
A B C D E

Interpretation: The above graph shows that the majority of investors prefer investing in Real
estate depending on the cost of the project, investor budget, home loan interest rates, etc.

INSURANCE PREFERENCE
E
20% A
10%

D
10%

C B
10% 50%

Interpretation: The above graph shows that the majority of investors prefer investing in
Insurance products and policies of different insurance companies depending upon the policy, the
premium, insurance cover provided, etc.

49
FACTORS CONSIDERED WHILE INVESTING

FACTORS INFLUENCING INVESTMENT

80

70

60
A
B
50
C
40 D
E
30

20

10

0
SAFETY CAPITAL GAIN TIME PERIOD TAX BENEFIT FIXED INCOME ROI

Interpretation: The above graph shows that majority of the respondents consider ROI, Capital
Gain, Safety in Investment, Time Period of Investment as important factors while choosing an
investment option.

A – MOST PREFERRED
E – LEAST PREFERRED

50
 5.0 FINDINGS OF THE STUDY

The findings of the study are as summed up below:

 The degree of variability of the return is significantly lower than the degree of variability
of the market index (NIFTY) as found from the analysis of Standard Deviation.
 The return generated by Gold ETF is more than returns provided by Debt Securities for 1
year and 2 year period showing a skewness towards the higher value of the range..
 The returns of Gold ETF have a positive degree of correlation with the market index
(NIFTY).
 The Beta value of most of the Gold ETF is in negative indicating that they have a reverse
relation to the market index return.
 Majority of the investors lack awareness and knowledge about investment opportunities
in Gold ETF schemes offered by various AMCs (Asset Management Companies) and
hence do not invest in them.
 They prefer investment in other investment options which provide them with safety of
their returns along with capital gain such as Fixed Deposits and Debt securities.
 ETF schemes provide several advantages over normal open ended Mutual Funds.
 The other investment products investors prefer are Mutual Funds, Equity Shares, and
Real Estate, Insurance.
 The factors affecting investment are safety of return, capital gain, return on investment
and investment time period.

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 6.1 RECOMMENDATIONS OF THE STUDY

On the basis of the project analysis, the following points are recommended, which are as
illustrated below:
 AMCs should take steps to increase customer awareness regarding Gold ETF scheme
investment options and the benefits of investing in them.
 Stock exchanges should also take steps to increase customer awareness with investor
education and other awareness campaigns through advertising in newspapers, magazines
and other advertisement media instruments.
 Portfolio diversification in Gold ETF instead of investing in Physical gold.
 Open ended Mutual Funds should provide more trading flexibility.

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 6.2 CONCLUSION

Gold ETFs offer investors a convenient way and means of investing in gold as a security without
the hassles of storage and safety concerns arising due to it. It also spares the investors from
worrying about the purity and quality of gold. It also provides various other benefits such as
electronic trading and Demat storage and providing a means to diversify one’s investment
portfolio.

But at the same time, the research indicated that only few people were aware of the investment
opportunities in Gold ETF and some means must be taken to educate and inform investors about
the pros and cons of investing in Gold ETFs.

The financial performance analysis indicates that the returns provided were better than debt
securities such as Fixed Deposits, Bonds, etc, while also showing the risk level involved was
less. It also showed a positive degree of correlation between market index return (NIFTY 50) and
the return provided by the various Gold ETFs.

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 6.3 LIMITATIONS OF THE STUDY

The limitations of the study are as explained below:

 The survey mainly includes the salaried service class people which could lead to results
being more biased towards them since they would have different motives, perception, risk
bearing capacity, etc as compared to business men.
 The sample size is small as compared to the number of investors present in India in and it
does not include investors in different geographical areas of India.
 Majority of the investors are not aware about the concept of Gold ETF.
 Majority of the investors still prefer to invest in physical gold instead of Gold ETF.
 The presence of other investment options which provide comparable return.

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 BIBLIOGRAPHY

WEBSITES
1) http://www.scribd.com/doc/25917169/ETFs-for-the-Long-Run-What-They-Are-How-
They-Work-and-Simple-Strategies-for-Successful-Long-Term-Investing
2) http://www.onemint.com/2010/04/19/which-is-the-best-gold-etf-in-india/
3) http://en.wikipedia.org/wiki/Exchange-traded_fund
4) http://www.kotakmutual.com/kmw/product/kotak-gold-ETF-funds.htm
5) http://en.wikipedia.org/wiki/Gold_exchange-traded_product
6) http://www.moneycontrol.com/india/stockpricequote/finance-investments/sbi-mutual-
fund-gold-exchange-traded-scheme/SBI16
7) http://www.sbimf.com/Product_Details.asp?ProductId=56
8) http://www.nse-india.com/
9) http://www.economywatch.com/etf-exchange-traded-funds/india-etf.html

BOOKS AND ARTICLES

1) JOURNAL OF INDEXES (MARCH-APRIL 2010)
2) Trading ETFs by Deron Wagner
3) Common Sense on Mutual Funds by John C. Bogle
4) The Exchange-Traded Funds Manual by Gary L. Gastineau

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 ANNEXURE

A-QUESTIONAIRE

Dear Respondents,

We request your participation in filling this questionnaire and participating in the survey.
This survey is being conducted for a project report for BBA Final Semester from BIT,Mesra,
Extension Centre, Noida to know about customer awareness about Gold ETFs and
investment behavior.

1) Do you invest your money?

Yes No
2) Are you aware about Gold ETF schemes?
Yes No , If no go to Q.6
3) Do you invest in Gold ETF schemes?
Yes No
4) Reasons for investing in Gold ETF schemes?
Less volatility in Return
Better Return expectation over Debt
Safety
Available in Electronic format
Tradable on Exchange
Portfolio Diversification
Others, Please specify …………………………………………………………
5) Which Gold ETF scheme do you prefer?
Gold Bees
Kotak Gold
Quantum Gold
Gold Share
Reliance Gold

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 SBI GETS
6) What your investment objectives?
Safety in Return
Good Return with low Risk
High Return with high Risk
Others, Please specify ………………………………………………………….
7) Rate the following investments upon your investment preference?
(1 – Most Preferred and 5 – Least Preferred)

INVESTMENT OPTIONS 1 2 3 4 5

FD          

Gold ETF          

Debts

Physical Gold          

Other Mutual Funds          

Equity Shares          

Real Estate          

Insurance          

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 8) Rate the factors you consider while investing.
(1 – Most Important, 5 – Least Important)

FACTORS 1 2 3 4 5

Safety          

Capital Gain          

Time Period          

Tax Benefit          

Fixed Income          

Return on Investment          

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PERSONAL DETAILS

Name - ………………………………………………………….

Occupation :

Salaried Business

Student Retired

Others, Please Specify ………………………………………………………….

Age Group :

18-25 25-40

40 & Above

Income Level

Less than 2 lacs 2 – 5 Lacs

5 Lacs & above

Email Id : ………………………………………………………………………..

Phone :......................................................................................................................

Date : Signature :

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