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 impairs 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. Jill Leyland Economic Advisers (2005) to World Gold Council said that the unlimited potential of gold ETF is of high interest for those countries who have not yet introduced such products. He further pointed out that, in addition to insurance funds, other agencies such as public funds, sovereign wealth funds, investment to gold ETF's also raise the demand for gold.

Gold ETF Index Fund is a kind of gold-based assets. It tracks the gold price and each share represents one-tenth of an ounce of gold. With transaction convenience, storage security, transaction costs and low liquidity, transparency of transactions and many other investment advantages, gold ETF has become widely accepted.

Nedeljkovic (2005) described that Gold ETFs, compared to some other structured products, are very simple structures. He further, described that there is no credit risk and investment in Gold ETFs inaccessible and simple. Gold ETFs are listed on a stock exchange, quoted in local currency, with no minimum investment. The other considerable characteristics of Gold ETFs are their cost effectiveness, security, and high liquidity.

Levin and Wright (2006) states that the gold is prominent for its inverse relationship with the US dollar. During the drop in the currency rate of the US dollar recently, the gold price had shown a robust upward shift in the price. The currency factor contributes to investor decision making framework in adoption of gold investment The inflationary hedging ability of gold and currency rate volatility is the key independent variable in this research and it is widely study by many of the professors.

Milonas and Rompotis (2006) conducted a study on the performance and the trading characteristics of the ETFs. Gastineau (2001) described the origin, main types and the benefits of ETFs. Carty confers several characteristics of ETFs like flexibility, convenience, risk diversification, tax efficiency and cost advantages. Gold ETF Index Fund is a kind of gold-based assets. It tracks the gold price and each share represents one-tenth of an ounce of gold. With transaction convenience, storage security, transaction costs and low liquidity, transparency of transactions and many other investment advantages, gold ETF has become widely accepted.

Levin & Wright (2006) stated that gold etf is widely acceptable and investor can sell the gold whenever they need the liquidity of the fund.

Milonas and Rompotis (2006) conducted a study on the performance and the trading characteristics of the ETFs. William A.Birdthistle (2007) studied the Exchange Traded Funds. He studied that Exchangetraded 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, ETFsprovide 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. Jennifer Chaung (2008) studied that ETFs 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 notto 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. World Gold Council (2009), the investor is keeping demand for gold as a safe haven and the demand is continue supported by the active investor who seeking the effective portfolio diversifiers in the financial crisis. It is due to the globalization and liberalization of the financial market which increase the correlation of the investment instrument. Baur and Lucey (2009), gold is said to be uncorrelated with other types of assets even when the globalization increase the correlation among the asset. This special feature contributes to the important of the gold investment. Thus gold poses the safe haven, diversifier and hedging characteristics to the investment portfolio. According to world gold Council (2009), the liquidity risk of the gold is relatively low as compare to other investment vehicle especially during the economic hardship.

Bang (2009) gold ETF is basically an open-ended mutual fund that invests in standard gold bullion as its underlying asset. It is also known as paper gold. These instruments are listed on the stock exchanges and, hence, can be bought and sold just like buying and selling of shares.

Vinay Acharya( 2009) Gold ETFs can be bought and sold like any other share or security on the stock market through a broker. You need to have a demat account in a bank or a depository partner, and a trading account with the broker. One benefit of gold ETF is the lower tax rate it attracts compared with that for physical gold. If gold ETFs are sold within one year of purchase, the profits are added to the income and taxed at normal rates. But if the holding period exceeds one year, the profits are treated as long-term gains and taxed at a flat rate of 10% or 20% after indexation benefit. In comparison, physical gold has to be held for at least three years for the profits to qualify as long-term capital gains. Incidentally, there is no tax on gains made from the sale of jewellery bought for personal use.

W.Floris Vossestein(January2010)studied that The Rise of the Active Exchange Traded Fund .This thesis analyses the performance of actively-managed Exchange Traded Funds. Active ETFsare 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 actives. 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 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 ETFsis, as expected, higher than the tracking error of its passive counterparts. Actively-managed ETFsdo not try to replicate the performance of their underlying benchmark.

Ross Norman (2010) an internationally known gold analyst at The Bullion Desk, said gold ETF market has greatly improved its availability in a short time. The first gold ETF listed on the Australian Stock Exchange (ASX) launched under the symbol GOLD, has made a very good introduction to the sales, just in June raised on 340 million ounces of gold, this also attracted the international community to the gold ETF. As the New York Stock Exchange's successful listing Street TRACKS Gold Shares, gold ETF open a prelude to a rapid development. Since then, the United Kingdom, South Africa, Switzerland, India and other

countries also have launched similar products; table 2 indicates the major gold ETFs traded in the world. Gold ETF trading gold on the widened channels, one hand improved the international market gold demand, and on the other also expands the market capacity.

Fisher lists five reasons why the yellow metal remains the most universally accepted and time-tested asset class. The reasons are Effective Portfolio Diversifier, Thrives under worst conditions, Hedge against inflation, Linkage with oil and US Dollar and Widening demand and supply Gap. He suggested that gold must be made a part of the asset allocation because it is a great risk diversifier and considered as a safe haven during times of economic uncertainty, political strife, high inflation and wars.

Sanjiv Shah (June, 2010) studied an instrument that enables a complete market view instead of a stock-specific investment. ETFs combine the advantages of both index funds and stocks. They are liquid, easy to use and can be traded in any quantity, just like stocks. ETFs provide diversification, market tracking, transparency of an index-based mutual fund and come at low costs. In the Indian context, the average expense ratio of an index fund is 1.3 per cent, while ETFs such as Nifty BeES are available at a ratio as low as 0.5 per cent. These are less than the expense ratios of actively managed funds, which hover around 2.25 per cent. Worldwide, ETFs have seen a phenomenal rise since they were introduced in the 1990s. Their assets under management (AUM) have surpassed a trillion dollars, with about 2,200 types of ETFs tracking various indices across asset classes. There has been a steady growth in their numbers (200) and AUM ($60 billion or about Rs 27,000 core) in the Asia Pacific region too. The Indian ETF space has also gained traction in recent years. The AUM of Indian ETFs is at $600 million (about Rs 2,700 crore) and is growing. For an investor looking to gain exposure to a specific asset class, it is convenient to buy or sell the entire market using these instruments. In a sense, these can be called 'Zen' instruments. For, after making an investment, one can be at peace with volatility because one is no longer dealing with a specific company. ETFs provides better risk-adjusted returns compared with a particular stock or sector. With the ETFs gaining ground, there is a good possibility that they will become a dominant investment tool in India. D.G.vaishnav (2011) studied that Gold ETFs (exchange traded funds ) offer a fairly costefficient way to invest in gold. Gold ETFs have delivered a 34 % return in the last three

years. This study is undertaken to analyze the performance of ETF gold schemes traded in the Indian capital The study will provide valuable insights to investors to relook on their investment strategies Vaibhav Aggarwal (2011) said that Gold has always been considered as one of the prime assets in our country because of its monetary value, its association with Goddess of Wealth Lakshmi, and also because of the emotional value one associates. The importance of gold can be valued from the fact that it is one of the heritages alongside land which is passed over from one generation to another.

Roman Baudzus( oct 2011) The new Indian love affair with ETF products of all kinds should not make investors ignore the fact that these products carry significant risks. Simply put, ETF investors do not own a claim on precious metal; instead, they own part of the ETF. This simple distinction helps to explain why, as far as security and ownership guarantees are concerned, ownership of physical metal remains the best way to hold gold and silver.

Lalatendu Mishra (June 11, 2011 ) studied that Stock exchanges may be off limits for gold exchange traded funds (ETFs), which are commodity-based assets but are currently traded at the bourses like stocks, if the Forward Markets Commission (FMC) has its way on governing them. FMC, the commodity futures market regulator, has been at loggerheads with the Securities and Exchange Board of India (Sebi) over the jurisdiction on governing gold ETFs and also all other future ETFs relating to commodities. FMC believes that it should be given the right to monitor gold ETFs as the underlined asset is a commodity. Therefore, Sebi should stop governing them and must not allow any further listing of ETFs till the jurisdiction is finalised, it feels. Dipak Mondal (April 2011) Investors who have been unable to invest in gold exchangetraded funds (ETFs) due to lack of a demat account or found investment thresholds high. Reliance Mutual Fund and Kodak Mutual Fund have launched gold fund of funds (FoFs) which invest the money collected from investor in gold ETFs, thus, doing away with the need for a demat account for investing in gold ETFs. "Through these FoFs, you can also invest through systematic investment plans (SIPs). A SIP in gold ETF was not possible," says Hiren Dhakan, associate fund manager, Bonanza Portfolio. The minimum investment limit in gold

ETF is 1 unit, which is equivalent to 1g of gold. At the current price level (around Rs 20,500 per 10g as on 17 March), you will have to invest at least Rs 2,000 in gold ETFs. With the new FoFs, you can invest as low as Rs 1,000. However, FoFs lead to dual cost-one for the FoF and the other for the underlying ETF. While gold ETFs charge up to 2.5% as annual fees, FoFs charge up to 0.75%. The extra expense could be offset by the saving on the demat charges.

Sandeep Shastri (nov 2012) Exchange Traded Fund or popularly known as ETF is a easy way to get rid of human bias at a cost efficient mode of investment into index of equity and certain selected commodities. This study tries to identify the gap area for which, despite being an effective investment vehicle ETF is still not very popular among Indian investors. The market share and growth in the same has not been significant over the years for ETFs in India.

National Stock Exchange (November 2012 ) Rising gold prices and continuing investment flow in yellow metal has pushed the size of assets held through gold exchange-traded funds (ETFs) to an all-time high of Rs 11,198 crore.The surge in asset size of gold funds has come at a time when the government is contemplating steps to encourage large flow of household savings into equity, mutual funds and other financial instruments, rather than to idle assets like gold. There are as many as 25 different gold ETF schemes across 14 different fund houses at present. These products, which track the metal's prices, provide an opportunity to investors to accumulate gold over a given period of time since they can be purchased in small quantities. National Stock Exchange ( November 2012 ) states that Trading in gold ETFs is usually higher on days like Akshaya Tritiya, Dhanteras and during festivals. The gross monthly traded value on gold ETFs on NSE, stood at Rs 1,195 crore, taking an average of the first seven months of 2012 (January to July 2012) as against Rs 933 crore, in the first seven months of 2011, a rise of about 28 per cent. Assets under management (AUMs) for gold ETF's (on NSE and BSE) stood at Rs 11,198 crore as on September 2012 as against Rs 8,173 crore at the same time last year, a growth of 37 per cent. Currently, 14 AMCs offer this product on the NSE platform. Fisher in his article mentioned that Gold Exchange-Traded Funds (ETFs) have made

investing in the yellow metal very convenient and inexpensive. He expressed that they offer a way of participating in the gold bullion market without the necessity of physical delivery of gold. He listed out six reasons why gold ETFs are considered as the best way to invest in the gold. The reasons mentioned are Wealth tax exemption, Income tax benefit, Investment in small denominations, Hedging, Convenience and better holding of ETFs as compared to physical gold holdings.

Bloomberg (2013) studied that Indian gold funds are shrinking for the first time since June as investors in the biggest bullion- consuming nation follow billionaire George Soros in pulling money from products backed by the precious metal. Exchange-traded funds in gold saw outflows of 80 million rupees ($1.5 million), data from the Association of Mutual Funds in India show. Investments in sovereign-debt funds rose by 4.46 billion rupees, the sixth straight month of inflows. Gold prices in India have slid 4 percent this year, while rupee bonds returned 2.7 percent, the second-highest gains in Asia.

Bakul Chugani Tongi (May 2010) Gold ETFs have clocked in about 8.7% gains, strengthening its role as a hedge against inflation as well as equity markets as Sensex has declined by about -5.6% during the same period. He also pointed out that, since the launch of gold ETFs in early 2007, they have emerged as a strong asset class, generating more than 27% returns (CAGR) in the past three years against the Sensex returns of just about 4% CAGR during this period. Dipak Mondal suggested that investors should take exposure in gold by buying either physical gold, Gold Exchange-Traded Funds or even units of mutual funds, which invest in the stocks of gold mining companies. He also added that due to the crisis in the European Union, most currencies are witnessing high volatility and unless world currencies reach some kind of equilibrium, prices of gold would continue to go up. In the very short-term, there are possibilities of a correction but gold, either in physical form or in mutual fund units, continues to be a very good investment tool.