Are FMPs (fixed maturity plans ) better than bank FDs (fixed deposits) ?

Its really elementary, FMPs probably offer better post tax returns than bank FDs for most classes of investors but could be theoretically riskier Confused, by the above explanation? Read on, on reasons why FMPs are generally than bank FDs

Whats similar to FMPs and bank FDs?

The fundamental similarity between FMPs and bank fixed deposits is that both FMPs and Bank FDs are both close ended- both fixed maturity plans and FDs have a definite maturity end date For example, all of us are aware of fixed deposits offered by banks that are of 6 months , 1 year , 2 years or 5 years maturity. Similarly, fixed maturity plans (FMPs) have a definite end date that could range from a month to a few years Also, both FMPs and bank FDs (fixed deposits) are fundamentally debt instruments that typically (more about that later!) do not have an equity component

What is different between bank FDs and FMPs?

There are some fundamental differences between bank FDs and Fixed maturity plans (FMPs)

FMPs are issued and managed by mutual funds while bank fixed deposits are managed by banks While bank fixed deposits (FDs) are deposits in bank debt instruments, FMPs are debt instruments managed by mutual funds in typically Govt backed securities, and corporate fixed deposits.

FMPs typically offer an expected rate of return, while the bank fixed deposits have a fixed rate of return
For example, if you invest in bank fixed deposit, you know exactly how much interest you will get at the deposit maturity date. Since fixed maturity plans are also close-ended, the mutual funds typically have a pretty good idea of the expected rate of return, since they lock into corporate debt or Govt securities for a fixed duration. However, unlike a bank fixed deposit, the rate of return promised by a mutual fund for a FMP is not guaranteed, but is typically close to the targeted return

FMPs offer better post tax returns than bank fixed deposits (FDs)
Aha,this is by far, the best feature of FMPs. The tax benefits from investing in a Fixed maturity plan are further enhanced by the lucrative concept of indexation , especially if the FMP is for a period of greater than 1 year. This is because of the FMP taxation benefits

This demonstrative table offers a good example why FMPs are so much more tax efficient than bank fixed deposits
FMP Yield Tenure of FMP 9.30% 370 days

Indexation rate (assumed) Long term Capital Gains tax rate The benefit of indexation for a FMP investor Amount invested (assumed) (Rs) Cash receivable on maturity; total interest @ 9.30% (Rs) Indexed cost (Rs) Taxable income (Rs) Tax payable (Rs) Post tax return (assumed)

5.00% 22.66% 100,000 109,513.24 105,000.00 4513.24 1022.70 8.30%

As the above table shows, even if the FMP has a small indicative yield of 9.3%, the post tax yield for the Fixed maturity plan is 8.3%. Comparatively, the post tax yield for a similar bank FD yielding pre-tax benefits of 9.3% will be yield post tax just 6.3% , at the highest tax slab

FMPs are potentially marginally riskier compared to bank FDs

Though fixed maturity plans managed by mutual funds typically lock in their debt investments at the time of the FMP issue, there is the risk of corporate debt default, especially , if the investment in FMPs is of non AA or non AAA rated securities

However, in these times of even banks potentially failing, the risk of corporate debt default is minor, if the FMP invests in AAA and AA rated securities

Monthly Income Plans : A detailed guide on MIPs

January 20, 2011 133 comments

7 Share
Monthly Income Plans, When you hear it for the first time, you get a feel that its some kind of assured and non -risky product which will deliver you uninterrupted monthly income, but its not exactly that way. Do you have a lot of cash which you want to park somewhere with expectation of better returns than a Fixed

Deposit? Are you looking for some kind of instrument which will give you regular income with decent returns with moderate or low risk? If yes, welcome to the world of Monthly Income Plans, which are also known as MIPs .

What are Monthly Income Plans ?

An MIP is nothing, but a debt oriented mutual fund which gives you income, in the form of dividends simple as that. As MIPs are debt oriented mutual funds, they invest heavily in debt instruments like debentures , corporate bonds, government securities etc. It generally has 75-80% of its money in debt and rest in equity and cash . The income you can get from Monthly income plans is not limited to the monthly option. You can also choose to receive income quarterly, half-yearly or annually. Just like any other mutual fund, the MIP too, comes with two options. 1. MIP with Dividend option : Monthly income plans with dividend option provides you an income in form of dividends. There is an option to receive this income monthly, quarterly, halfyearly and yearly. So you have to choose the option at the time of buying the MIP . Note that while the dividend from MIPs are

tax-free in the hands of investors, the company has to pay a dividend distribution tax of around 14% on the dividend before it reaches your hand. So your returns reduce by that much. For example , If company declares a dividend of Rs 3 per unit, they have to pay 42 paisa (14%) as Dividend Distribution Tax and you will only get remaining amount in your hand , on which you dont have to pay any tax. I hope you know, that the NAV of your MIP will come down by Rs 3 after dividend is declared and given to you. So dont shout your excitement to all the world when you get dividends, its just your own money which you got! 2. MIP with Growth Option : Here, the money is not paid out to you in forms of dividends, instead it keeps growing in the mutual funds. Hence your money is just growing inside the fund itself and you can reap all the benefits at the time of redeeming the funds in future. In this option, you have nothing to do with dividends. Note that you get power of compounding in growth option because your returns also earn in future. Here is an article on difference between dividend vs growth option in mutual funds to give you a better idea of what I am talking about.

Features Plans

of

Monthly

Income

1. Dividends can be declared only from the profits and not from Capital Regulations demand that dividend can be paid only from surpluses and not from the capital investment. What it actually means is that dividends can be declared from earned income only. If your initial NAV was Rs 10 and after a month the NAV rose to Rs 10.2 , The dividend can only be given out of this 0.2 and not from the initial capital value . This makes sure that Company can not show to the world that they are constantly giving income in case they have not done well. 2. No guarantee of Regular Income

The biggest myth about Monthly income plans is that they provide guaranteed monthly income, which is not true (See this question asked by Krishna on our Forum). While the aim of MIPs is to regularly declare dividends, it might happen at times, that they do not declare any dividends because of bad performance. To top that, there is no regulation or oversight on the MIPs part to declare regular dividends. So take it on the chin, if you dont get your income once in a while . 3. MIPs return are influenced by interest rates and stock market Just because its a debt oriented product, It does not mean that they are safe . Even MIPs can give negative return, but in extreme cases. The debt portion is influenced by interest rates. When the interest rate falls, the NAV rises as price of bond increases. When interest rate rises, NAV falls. At such times the equity portion of the fund helps to maintain the return. Here is an article on Interest Rates and how they affect Mutual funds . 4. MIPs are prone to mis-selling because of a high commission structure MIPs offer lucrative commissions to agents as much as 1-1.5% unlike 0.5-.75% in Equity funds. Due to this it becomes easy to missell MIPs as they can be labelled as Safe Funds and Monthly Income Plans which Indians like to hear a lot .
Look what happened after the abolition of entry load in mutual funds in 2009 . From the last 1 Year, the corpus of MIP schemes have seen a huge inflow all over India. Last year, the total industry AUM was close to Rs. 3700 crore and today it is well over 24500 crore. In this entire period, equity funds AUM have gone down. Now when the intentions itself are not good, needless to say that the outcome will be right. Many investors are not aware that there is an EXIT Load of 1% in almost all MIPs if you were to withdraw before one year & in some cases even 1.5 years. says Hemant Beniwal on this Forum post

Taxation of MIPs
MIPs are debt funds and hence the taxation is same as debt funds . Short Term Capital Gains : Any profit before a year would be Short term capital gains and it would be added to your income and taxed at your slab rate. So for investors who are in higher tax slabs it would be wise not to sell their MIPs (in case they can) before a year, else there will be a good amount of tax on your profits. Long Term Capital Gains : Any profit you get after 1 yr in MIP would be taxed at 10 per cent without indexation or 20 per cent with indexation, whichever is lower. Short Term and Long term Capital Loss : The best thing about MIPs over FDs or Post office schemes is that incase you have any loss in MIPs , you can set it off against the capital gains in the same year or in next 8 yrs , which makes sure that even losses can be used for tax saving purpose. Dividends : All the dividends received from the MIPs would be tax-free in hands of investors, but note that companies already pay Dividend distribution tax from the MIPs Read more on Short term and long term capital gains

MIPs save money for bad times

Think about ants! They make sure that they save enough food for rainy season, so that they dont fast in bad times. In the same way MIPs do not declare all the earned income as dividends, instead they declare a part of earned income as dividend and save rest for troubled times in future. This makes sure that when there are bad days in future and MIPs do not see much growth, they can use the money saved, to declare dividends. For instance, in 2008, despite bad markets, 19 funds skipped only up to four monthly dividends. However a lot of MIPs didnt perform that wel l and could not save the part of earned income in a proper way. Hence they had to skip all 12 months dividends. Eg., Canara Robeco MIP Mn Div, which skipped all 12 dividends in 2008 and 9 months dividends in

year 2009 . See the chart on the right to get more insight on how MIPs missed their dividends . Source : LiveMint Beware : There is one more option called dividend reinvestment in MIPs apart from Dividend payout and growth . If the payable dividend is less than Rs 250, then the dividend would be compulsorily reinvested.

Who should Invest in MIPs ?

1. Investors looking for regular Income If you are retired/semi-retired or just looking to generate some regular income can look at MIPs as an option . Note that instead of choosing a monthly option of income, I would rather suggest a quarterly or half-yearly option . 2. Conservative investors looking for better returns Are you a conservative investor but still looking for better returns than pure debt options like Fixed deposits or Insurance policies ? Well, you cant get 100% safety with MIPs , but there are very good change that you would be getting better than FD returns with MIPs. 3. Investors who want to park a big sum of money A lot of people have questions like Where to park my lump sum money for medium term with lower risk ? If your horizon is very less like 6 months or a year, MIPs might not be the best option, but if you want to park it for 2-3 yrs with low risk, MIPs with growth option can be a suitable instrument .

MIP vs Fixed Deposits/ Fixed Maturity Plans/ POIMS

You might get confused between so many debt products and might be wondering how Monthly Income Plans compare to Fixed Deposits (read this post by Deepak Shenoy) , Post Office Monthly Income Plans or Fixed Maturity Plans (FMP) . There are

various parameters on which they all differ . Below is the chart which shows you those differences .

Two ways of getting income from an MIP

We will see two different ways of generating monthly/quarterly income through Monthly Income Plans . One is the regular way of choosing dividend option and the option one is starting Systematic Withdrawal Plan from MIP after an year of buying it . Lets look at both and its pros and cons 1. Choose dividend option

The good point in this option is that you will start getting the income immediately as company starts declaring the dividends, and you dont have to take care of taxation issues. However the bad side is that eventually 14% dividend distribution tax would be paid by company and the stability of income will depend on how often dividends are declared by company. If they skip the dividend you will not be getting the income for that month/quarter . 2. Choosing growth option and start SWP (Systematic Withdrawal Plan) If you use a bit of strategy, you can create a more stable and more tax efficient income by this method. You can choose growth option in MIP and after 1 yr you can start a SWP (systematic withdrawal plan , opposite of SIP) from your MIP to your bank account . What will happen with this option is that you will not have to depend on companies dividend announcement , as its your decision to liquidate a fixed part of your MIPs, sell it and get the money in you bank account . Also as you are doing it after 1 yr, there wont be any exit load and the profits you get out of it would be Long term capital gains , so you only pay 10% on the profits (assuming you dont want indexation benefits) , which is 4% lesser than the dividend distribution tax . If you have a large amount of investments in MIPs, then this option can save some tax for you, but if your investments arent significant enough, its not worth the hassle .

Some best performing MIPs in Market

One of the readers Sagar asked his query on our forum : Which is the best Monthly income plan ? . While there is no guarantee that the MIP which you choose today will keep performing well always , but I have got a list of MIPs which have done excellent in past and still look good. You can choose any of these if you

are disciplined enough . Once you choose them make sure you concentrate on regularly investing in them without looking at their performance every week or month . Just review them in a year or so . watch out for the expense ratio of the MIPs, lower the better

Conclusion So the main takeaway from this article for you should be to understand that MIPs can be good alternative for you if you have been investing a lot in Fixed Deposits and do not mind taking small amount of risk . Another important point was to look at MIPs are income generating products with understanding that sometimes they the income can go for a toss in between and you have to comfortable with that .

Mutual Funds vs Stocks A familiar question, what is the difference between mutual funds and stocks? This is a debate that is, more often than not, left unresolved, because people were unable to find the heart of these topics. Stock investment is where the investor will need to purchase shares offered by a specific company. Once the shares are purchased, the investor hopes to draw a profit from his investment. The investors profits will increase if the value of the shares grow, and likewise, should the value of the shares fall, the investor will face the failure of his investment. This is the basic nature of stock investing. On the other hand, mutual funds, instead of being shares from one specific company, comprise of a collective group of stocks, bonds and securities. In this case, the investor is hoping for significant profits from his collective group of investments. Stocks that do well can make up for the shortcomings of the stocks that have not performed so well, and this is an advantage of a mutual fund investment. This process can actually become quite lucrative, and is a popular form of investment across the globe. A mutual funds investor can acquire even more revenue, should his collective group of stocks perform well. Therefore, we ask the basic question once more, what is the difference between mutual funds and stocks? The answer is now clearer: A mutual funds investor will seek profit from a collective group of stocks, while a stock investor will hope for gains from

shares of a single company. The overall risk factor for the mutual fund investor is lower than that for the stock investor. As an explanation, should one or two of the stocks from the collective group fail to provide profits, it is not too much of a problem, because other stocks from the collective group could be performing extremely well, and therefore, covering your losses from the failing stocks. Stock investing has more associated risk, as you are relying on the performance of only one company. Mutual funds and stocks work with different principles in the market, but it is this basic diversification that sets the two investment options apart. Many people prefer to invest in mutual funds, but it is clearly a choice for the individual. Summary: 1.Mutual funds comprise of a combination of various stocks, bonds and securities. 2.Investing in stocks is buying the shares of a single company. 3.A share in a mutual fund investment is similar to buying many smaller stock shares. They are considered to carry lower risks, because they offer diversification. 4.If you are investing in the stock market, always make index funds the core of your investments.

Read more: Difference Between Mutual Funds and Stocks | Difference Between | Mutual Funds vs Stocks http://www.differencebetween.net/business/financebusiness-2/difference-between-mutual-funds-andstocks/#ixzz209Ls6SHS

5 difference between stock & mutual funds Investing

March 29, 2012 89 comments

47 Share
When we say Equity, what comes to your mind Stock or Equity Mutual Fund? While a single stock or a mutual fund both comes under the category of Equity and they are good option for long-term investment and needs periodic review. There are some differences between stock investing and mutual fund investing that is done by a common man. Its a good idea to know where they differ and in which situation they differ, so that one can take better investing decisions. Lets look at the main differences

Volatility
When you invest in a single stock or bunch of stocks (3-5 scrips), the change in its value is very high. On a given day it can be extremely volatile. It can give you 20% return and sometimes -10% loss also depending on the environment. This can be very exciting and at the same time very disheartening andgives you a feeling that you need to act fast. Mutual fund on the other hand is not that much volatile by nature, as the diversification is very large and at a time 50-100 stocks are covered. Different kinds of stocks from different sectors and market capitalization are involved in mutual fund and the over all change in value is thus less volatile (other than extreme days).

Return Potential
This is very much in line with the above point but still lets look at it separately. There are lot of success stories where someone got quick rich by investing in equities directly and it can happen, but those are rare happenings and require lot of work and analysis, patience and belief in what you have picked. If you want superb returns in short time and you believe you can research well, you can go for stock investing directly but then risk is also more. Mutual funds are known to deliver good returns (not in line with stocks, but still very good). So you can expect handsome returns from mutual funds but not unbelievable like stocks return. This is mainly because the money is diversified across different stocks (read ideas) and chances of all of them becoming a super success in short time is impossible.

Monitoring Required
Stock investing is a personal affair and you are doing it on your own the decision of what to sell and what to buy is on you. Even in case of long-term investing, you might have to keep an eye every quarter or yearly unless you have really spent some good time in picking the good stock. You need to also keep an eye on news and sector specific developments. Monitoring in mutual funds is relatively low because the job of monitoring is anyways done by the fund manager who is paid SALARY to filter through the fluctuations. He constantly adds and removes the stocks from the portfolio. This can be a positive point, but sometimes it can be a negative point also if there is too much of churning.

SIP Investment
Mutual funds are known for possibility of SIP (monthly investment). SIP in mutual fund works and is recommended as a great way for a salaried person to invest in equity markets for long-term basis without understanding the working of equity markets. However SIP in stocks do not work. Yes, some companies provide you the facility of SIP in stocks, but its a terrible concept. There is no diversification and SIP in a particular stock does not make sense because the risk is with single stock. A stock can be in a bad phase for years and decades, whereas in a mutual fund the bad performing stock is weeded out.

Asset Class Restriction

Stocks investing is restricted to Stocks only. You can choose a large cap stock, mid cap stock or small cap stock, but finally it will be equity asset class. However, mutual funds can invest in mix of asset classes. There are equity funds, debt funds, gold funds, Mix of Equity and debt also. To top up,even balanced funds are there which can adjust the asset allocation on its own, so in a way mutual funds are more superior in terms of features compared to a single or bunch or stocks.

Conclusion
Mutual Funds are actually collection of stocks only but just because its a group of stocks the characteristics are not very similar to that of stocks. You should be clear about all the points of difference and only after that you should decide whether to invest in Stocks directly or take the Mutual Fund route.

The truth is you need to invest in the fund that will make you the most money. Look at rankings monthly Both ETFs and Mutual Funds allow for broad diversification or narrow sector concentration (e.g., industry, country, foreign currency, debt instead of equity) by a purchase of one single holding. They can be described as "baskets of stocks" that have some kind of common "theme." There are however several main differences: ETFs trade on exchanges like stocks and can be bought and sold at any time during the exchange trading sessions, although some of them may be extremely thinly traded. Mutual Funds, on the other hand, have to be usually redeemed or purchased only at the Net Asset Value, based on closing prices for the day. Thus, if there is a negative event, you cannot use an automated sell stop and have to ride the prices all the way to the day's close. Nevertheless, the problems with liquidity under normal economic conditions are very rare with Mutual Funds. Unlike many Mutual Funds, ETFs do not have minimums to invest, minimum holding periods or early withdrawal fees. Mutual Funds are likely to have different classes of shares A/B/or C, which may have to be held for a certain minimum time to avoid fees when selling (sometimes 2 to 3 years, or more). Both ETFs and Mutual Funds deduct managerial and operational expenses from your (growing or shrinking) investment, but when compared especially to Load Mutual Funds, ETFs on average have lower such deductions. ETF trades, on the other hand, will be garnished with brokerage commission fees. However, nowadays, at discount online brokers they are almost negligible. Highly liquid ETFs, those with large daily volumes, are complemented with options that trade on Options Exchanges. Such options may be useful in hedging larger or riskier positions. Mutual Funds are not optionable. Mutual Funds usually cannot be bought on margin or sold short by an investor. This can be done easily with ETFs. Also, all ETFs are available through almost any broker. That is not always true about Mutual Funds that have specific agreements with different brokerage houses. Unlike Mutual Funds, ETFs may be highly leveraged, buy on margin or trade options, employ short selling, or use complicated derivatives to achieve, for example, inverse performance of given indices (e.g., SKF). This may be useful for anybody wanting to employ leverage in IRA or 401K accounts.

Read more: http://wiki.answers.com/Q/What_are_the_main_differences_between_ETFs_and _Mutual_Funds#ixzz209MMWKxJ

Difference between Gold Saving Funds and Gold ETF ?

June 30, 2011 93 comments

20 Share
Today we wll see what is the difference between Gold Saving Fund and Gold ETFs . The biggest marketing pitch for selling the Gold saving fund is that one can invest in gold funds without a demat account and can set a SIP for the same, which is true. However, the alternate option of Gold ETFs doesnt not allow investments and/or SIPs without a demat account. But most of the agents hide these details of costs and do not educate their clients on how things work! Source : Kotak Website As of today, Reliance, Kotak and Quantum have launched their Gold Saving Funds of Funds. All of these Gold saving funds are almost same. Lets take an example of Reliance Gold Saving Fund, which is nothing but a fund of funds which invest in their respective Gold ETFs Did you know that?

Difference between Gold Saving Funds and Gold ETFs ?

Gold ETFs : Lets understand this for a moment. In simple terms, these are financial products which invests in physical gold and tracks its pricing on day to day basis. These ETFs have their own expense ratio which is considered very high if compared to US market, but thats the price we pay to invest in gold electronically. You need a demat account to invest in Gold ETF and you can trade these ETFs through stock exchange.

Gold Saving funds are nothing but mutual funds which invests majority of its corpus (90%-100%) in Gold ETFs (of the same sister company), a small portion might also be in money market instruments or some short term debt products. For example Quantum Gold Saving Funds of Funds as per its mandate can invest anywhere from 95%-100% in the units of Quantum Gold ETFs, and rest in money market instruments and other short term debt products. But the important point you should note here is that the underlying investment is still gold, but not directly! Its indirectly through gold ETFs, and now as there are two layers in between, you pay charges two times! So you pay charges for Gold saving funds and also for gold ETFs, this part is generally not revealed by the agent who sells you these Gold saving funds. Also for the gold saving funds there are high exit loads

So which one is better and which one you should choose ?

If someone does not have a demat account and wants to automatically invest in gold each month through SIP, gold saving funds are the best option. But for someone who is conscious about the expenses and can invest through his demat amount each month, Gold ETFs are a good option.

Conclusion
A lot of investors are lured into these gold saving funds without giving any information on the charges, which is not right. Gold saving funds over a long-term can really eat away your returns because the high charges will cut a big pie out of the returns earned.
Considering consistent rise in the gold prices, and resultant interest of investors in the gold ETF, recently two mutual funds launched Gold mutual fund schemes where you can directly invest in gold through the mutual fund. In this article we will explore the relative merits and demerits of investing in Gold Funds vis-vis gold ETF. To begin with, both Gold ETF and Gold funds are mutual fund products but with a different mode of purchase. The Gold ETF can only be bought or sold through a platform of Stock Exchange and you cannot purchase or sale of Gold ETF directly from the mutual fund. However with introduction of the facility of purchase of mutual funds units on the stock exchange platform, you can invest in the units of Gold Funds either through mutual fund or stock exchange. Ease of investment A de-mat account with a broker registered either with BSE or NSE is needed in case

of investment in Gold ETF. But very few people in India have a de-mat account due to various reasons. However one can invest in mutual fundswithout a de-mat account, hence the number is much larger for the people who have invested in mutual funds without having a demat account. This way we see that larger population would it convenient to invest through Gold Fund rather than investing in Gold ETF through the route of buying it through a broker of a stock exchange. Benefits of Systematic Investment Plan By investing a fixed sum of money every month, you get the benefit of rupee cost averaging, similarly Gold funds provide you this benefit where you can invest fixed sum of money in the units of Gold Fund sailing through high and lows of the gold. Systematic Investment Plan ensures that you buy lesser quantity when the prices are high, and enables you to buy higher quantity when the prices are lower. This way you get better average cost of purchase known as rupee cost averaging. This benefit is not available for investment in Gold ETF because here you cannot invest fixed sum of money, but only fixed quantity of units of Gold ETF at varying prices. Liquidity Currently there around a dozen gold ETF listed on the stock exchanges but except for the Gold ETF of Benchmark Fund known as Gold Bees and Gold ETF of Reliance, the volume traded on the stock exchanges of others is not very significant. This raises an issue of liquidity of the investment. However in case you invest in gold through Gold Funds, you can surrender the units to the mutual fund at any time and based on the payment cycle, you will get your money. This ensures that you are able to get your money back whenever you want. Costs involved The tentative annual expenses of the gold mutual fund is projected to be around 1.50% of the asset under management whereas it is around 1% in case of Gold ETF funds generally. On the face of it, the investment in Gold ETF looks comparatively cheaper than the Gold Fund but this not so always. In addition to the 1% cost of annual expenses of the mutual fund managing the Gold ETF scheme, you have to pay brokerage every time you buy and sell the Gold ETF. Moreover there is an annual cost of maintaining the demat account. If you have opened the demat account only for the purpose of buying and selling Gold ETF, the full annual cost of around Rs. 300 will have to be loaded to the cost of Gold ETF. Though there is no entry load in case of Gold Fund, you need to take into account the exit

load the fund house will charge in case you exit the fund within a period of one year from the date of purchase. In case of Kotak Gold Fund, the exit charges will be 2% if you exit the fund within six months but you will be charged 1% if you redeem the units after six months but before completion of one year. Since the Gold ETF is traded like equity shares, the restriction of early exit does not apply. Therefore Gold ETFs will work for you if your purpose of putting money is either to take benefits of short - term volatility in the gold prices or accumulation of gold over a longer period of time. It is worth noting that the cumulative difference between the annual expenses of Fund house of Gold fund of 1.5% and 1% applicable to Gold ETF will translate into a very big amount. This is because the transaction cost of buying or selling Gold ETF is only one time cost and not the recurring cost. Maintenance of historical cost For investments made through gold funds, the mutual funds send you a quarterly statement of the transactions displaying dates, rates and the cost of transaction. This can be used for your records for maintenance of historical cost for calculation of capital gains as and when you sell the units. However for your transactions in Gold ETF, you need to preserve all the brokers invoices and maintain separate records for history of the cost of purchases at various points of time. This becomes cumbersome. Taking benefits of volatility in the Market The Gold Mutual Fund is normally attractive for those who want to take the benefits of rupee averaging principle through systematic Investment Plan. However for those who are actively involved in the market as traders and not as long-term investor, this may not work because the NAV of the fund at which the fund sells the units is based on the closing NAV calculated based on price of the gold on the previous day. However for the active traders, the route of Gold ETF provides the opportunity to benefit from sudden price movement of the gold as the prices of Gold ETF reflect the value of the underlying gold on real time basis rather than on the price of the gold on yesterday.