A COMPARATIVE STUDY ON INVESTING IN GOLD RELATED ASSETS

Dr. Velmurugan. PS Saravanan A Raghavendra R.H

Assistant Professor, Ph.D Research Scholar, Ph.D Research Scholar
Department of Commerce, Department of Commerce Department of Commerce
School of Management School of Management School of Management
Pondicherry University Pondicherry University Pondicherry University

ABSTRACT
This study examines the performance of the return of Gold ETFs, Gold mutual fund and
physical Gold. Using the data collected from MCX, NSE and SMC Trade Online for the period from
April 2007 to September2012, adopting descriptive statistics, ANOVA and LSD test. Results proved that
investing in Gold ETFs are more profitable than investing in Gold Mutual fund and Physical form of
Gold.

Keywords: Gold investment, Gold ETF, Gold MFs

Introduction
Gold is a precious metal that has functioned as a currency and served as a long-Standing investment
since the early days of civilization. Gold is a safe haven investment, which means that investors will put their
money in gold during times of extreme uncertainty such as war, terrorist attacks or financial uncertainty such
as a sell-off in the stock market or during times of high inflation. Across the world, gold is seen largely as an
investment product where the investors, both retail and non-retail, are investing in it for pure economic
reasons. In contrast, gold is a majorly consumer product in our country. We Indians buy gold for consumption,
typically in the form of jewellery and they have a special significance for gold in the culture in a variety of
contexts ranging from a form of adornment to a status symbol to an investment for the tough times. In the year
of 1925 the gold rate was Rs.18.75 for 10gms only but today gold rate is nearly Rs.30.000 for 10gms. Few of
the reasons why people buy gold is because Gold is considered an equivalent for liquid cash, Gold has great
religious significance, great ornamental value etc. Investment in Gold can happen in any of the following ways
in the contemporary world.

Gold bullion. - Refiners produce gold bars from one gram to 400 ozs.

Gold coins
The most popular are one oz coins such as the American Eagle, Canadian Maple Leaf, the South
African Krugerrand and the Austrian Vienna Philharmonic. They are easy to keep and transport and closely
match the price of gold with a small premium. More specific details.

Numismatic coins
Older coins which fit the description of collectibles have a premium to the value of gold included in
the coin. The holder is dependent upon an accurate and fair appraisal.

Gold certificates
A certificate which represents ownership of gold bullion held by a financial institution for convenient
and safe storage. There is a fee for storage and insurance.

Gold futures and options

A futures contract traded on one of the futures exchanges, such as the COMEX in New York. This
method is generally leveraged and options price movement much more than that of gold itself. It can be used
to sell short and can be used to benefit from a drop in the price of gold.

Gold mining stocks

Stock ownership of a company involved in gold mining is traded on one of the exchanges. The price
movement is dependent not only upon the price of gold, but also upon the future of the corporation and
management. Its price movement is almost always more than the movement of gold itself. Market Vectors
Gold Miners ETF (GDX) is one way to invest in stocks.
Jewellery
Representing the largest consumption of gold each year, jewelry is a major method of savings in
developing economies.

Exchange Traded Funds (ETF)

It is perhaps the safest method of buying and owning gold by buying shares in a fund based solely on
the existing market price of gold. No leverage or storage problems. GLD (SPDR Gold Trust), GDX (Market
Vectors Gold Miners ETF) and SLV (i-Shares Silver Trust).

Gold Mutual funds

This is a relatively safe method of buying and owning gold stocks allows the owner to diversify
among many stocks and allows the investing decisions to be made by a professional. Investment methods vary
among funds and provide many different styles of portfolio management for an investor to choose from. Prices
move faster and further in both directions than the price of gold.
The present study concentrates on comparing the return among Physical gold, Gold ETF and Gold
mutual fund because Gold may be ruling at record high price level but investors are parking their money
buying physical gold. Besides buying physical Gold, investors also take exposure to the GOLD ETF that
tracks the metal’s price or Gold Mutual fund. Now let us have a brief explanation on the modes operandi in
these Gold related assets.
Gold Exchange Traded Funds (Gold ETF) is the unique product offering from the exchange that retail
allows investment in gold in dematerialized form through their normal demats accounts. This product is
designed to overcome most of the difficulties faced while investing in gold. With Gold ETF there is no risk of
losing your precious investment due to theft. Being in the demat form, your investment remains safe from the
prying eyes. Another trouble of putting money in physical gold is that a lot of your hard earned money gets
spent on making charges (in case of jewellery) or premium pricing (in case of coins or bars from banks). With
Gold ETF, the gold is available at the standard international market rates which is available transparently and
is devoid of any markups. The Gold ETF can only be bought or sold through a platform of Stock Exchange
and not possible to buy or sell 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. Gold Exchange Traded Fund (Gold ETF) was launched
in India in 2007 by Benchmark Asset Management Company (AMC) and was quickly followed by few other
AMCs. The initial phase witnessed a slow but steady growth in assets, but it was in the past two years that the
growth has accelerated rapidly. As on June 2012, there were 14 players in the Gold ETF domain with a total
asset holding of approximately INR 10095 crores.
Gold Mutual Fund is a mutual fund which invests in gold. When you buy or invest in a gold mutual
fund, the fund managers invest your money in gold. Typically, when prices of gold increase, the gold mutual
fund performs well. The exact performance and the returns you get depend on how the fund managers manage
your money, when do they buy and/or sell, etc. they charged a small fee called entry load, typically around
2.5% at the time when you invest. Just like any other mutual fund, by investing in a gold mutual fund, an
investor buy units of that mutual fund. The price of one unit is called NAV or Net asset value. When the
mutual fund makes profit, the NAV increases. If it makes loss the NAV decreases and so on. If the investors
want to invest more, he can buy more units. If the investors want to get part or whole of cash he invested back,
he can sell some or all of the mutual fund units you have. The NAV can also be used to compare the
performance of different gold mutual funds.

Need for the study

Since the investment waves such as Gold ETF and Gold Mutual fund closely follow the value
Physical Gold, it is normally expected that there should not be any significant difference in returns is investing
in these avenues. These create a necessity to empirically prove whether such a notion is actually prevailing
while making investment in these three alternative form of Gold related assets.

Objectives of the study

The main objective of the study is to examine the performance of the returns of ETF Gold, Gold
Mutual Fund and physical form of Gold.
Specifically,
1. To examine the performance Gold related investments viz., Gold ETF, Gold Mutual Fund and Physical
Gold.
2. To ascertain the better investment among the return of Gold ETFs and Gold Mutual Fund
Hypotheses
1. Ho: There is no difference between the return of Gold ETF, Gold Mutual Fund and Physical Gold
investments.
2. H1: There is a difference between the return of Gold ETF, Gold Mutual Fund and Physical Gold
investments.

III. Result and Discussion

Table #1
Descriptive Statistics of Physical Gold, Gold ETFs and Gold Mutual Funds.

Gold ETFs Gold MFs T

Physical Gold Pine he
Form Bees UTI Kotak Reliance Quantum Bridge DSPBR Table
1,
Mean 1.4505 1.956 1.9957 1.9665 1.8849 0.9752 0.0063 0.0063 above
Standard
represe
Error 0.5594 0.7877 0.7511 0.7873 0.7627 0.387 0.0099 0.0116
Standard
nts the
Deviation 20.1612 23.4873 22.3941 23.4751 22.7394 11.5376 0.2943 0.3458 descript
Sample ive
Variance 406.4723 551.6537 501.4975 551.078 517.082 133.1162 0.0866 0.1196 statistic
s of
Kurtosis 11.0006 7.0737 9.2779 7.7653 8.3439 7.9947 1.4849 2.3834 Gold
Skewness -0.2397 -0.4463 -0.4189 -0.5573 -0.0023 -0.4207 -0.1365 -0.1051 ETF
return
Minimum -191.7 -164.65 -163.4 -165.5 -163.5 -82 -1.33 -1.89 of Gold
Bee,
Maximum 129.1 115.9 134.9 111.8 158.35 62.95 1.31 1.39
UTI,
Kotak, Reliance, Quantum and Physical Purchase of Gold and the Gold Mutual Fund companies’ return of
Pine Bridge and DSPBR daily returns. The Mean of Gold ETF returns are 1.9560, 1.9957, 1.9665, 1.8849,
0.9752 respectively and Gold Physical Purchase return is 1.4505 and Gold mutual funds are 0.0063
and 0.0063 respectively. It shows the return of Gold ETF is higher than the physical Gold and Gold Mutual
Fund during the study period except Quantum ETF return. The Standard Deviation of Gold ETF returns
are23.4873, 22.3941, 23.4751, 22.7394, 11.5376 respectively and Gold Physical Purchase return is 20.1612
and Gold Mutual fund returns are 0.2943 and 0.3458 respectively. It shows that Gold Physical Purchase return
is less as compare to Gold ETF return Except Quantum ETF return and more to the Gold Mutual Fund.
Kurtosis of Gold ETF returns are 7.0737, 9.2779, 7.7653, 8.3439, 7.9947 respectively and Gold Physical
Purchase return is11.0006 and the Gold mutual fund return are 1.4849 and 2.3834 respectively. If the kurtosis
exceeds the 3; the distribution is leptokurtic relative to the normal. In the above case kurtosis is leptokurtic
because it exceeded 3 (those are "peaked" and "fat tails”).The Skewness of Gold ETF returns are -0.4463, -
0.4189, -0.5573, -0.0023, -0.4207 respectively and Gold Physical Purchase return-0.2397 and Gold mutual
fund returns is-0.1365 and -0.1051 respectively. A positive skewness 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 and vice versa.

One-way ANOVA
The one-way analysis of variance (ANOVA) is used to determine whether there are any significant
differences between the means of three or more independent groups. It compares the means between the
groups and determines whether any of those means are statistically significantly different from each other.
Specifically, it tests the null hypothesis:

Where
µ = group population mean and
k = number of groups.
Table #2
Test of Homogeneity of Variance

Levene Statistic df1 df2 Sig.

216.608 7 7514 .000
 Levene's statistic is calculated for the variances in this ANOVA. If this is significant, we have
evidence that the homogeneity assumption has been violated. Here the assumption is not violated.
In statistics, Levene's test is an inferential statistic used to assess the equality of variances in different
samples. It tests the null hypothesis that the population variances are equal (called homogeneity of variance or
homoscedasticity). If the resulting P-value of Levene's test is less than some critical value (typically 0.05), the
obtained differences in sample variances are unlikely to have occurred based on random sampling from a
population with equal variances. Thus, the null hypothesis of equal variances is rejected and it is concluded
that there is a difference between the variances in the population.
Table # 3
ANOVA
Sum of Squares df Mean Square F- statics Sig.
Between Groups 4610.040 7 658.577 1.956 0.037
Within Groups 2529715.531 7514 336.667
Total 2534325.572 7521
This table shows the output of the ANOVA analysis and whether we have a statistically significant
difference between our group means. We can see that in this example the significance level is 0.037 (p = .037),
which is below 0.05. Therefore, there is a statistically significant difference in the ETF Gold return and gold
mutual fund return. We have a significant F-value, we now know that all the means are not equal (i.e., reject
Ho in favor of H1). However, we do not yet know exactly which means are significantly different to which
other means. For this we need LSD Test.
Table # 4
LSD Test
Physical Gold UTI Kotak Reliance Quantum Pine DSPBR
Bee Bridge World
Physical ###
Gold Bee 0.5055 ###
UTI 0.5452 0.0397 ###
Kotak 0.5160 0.0105 -0.0293 ###
Reliance 0.4344 -0.0710 -0.1108 -0.0815 ###
Quantum -0.4753 -0.9808 -1.0205 -0.9913 -0.9098 ###
Pine - - 1.9894** - - -0.9688 ###
Bridge 1.4442** 1.9496** 1.9601** 1.8786**
DSPBR - - - 1.9602** - -0.9689 - ###
World 1.4443** 1.9497** 1.9895** 1.8787** 0.0001
**significant at 5% level

Multiple Comparisons table

From the results so far, we know that there are significant differences between the groups as a whole.
The table above on understands Multiple Comparisons, shows which groups differed from each other. The
LSD post-hoc test is generally the preferred test for conducting post-hoc tests on a one-way ANOVA. We can
see from the table above that there is a significant difference in return between the group that the Physical and
the Pine Bridge (p = 0.046) as well as between the Physical and DSPBR World (p = 0.034). However, there
are no differences between the groups that Physicaland with other source of investment. From the above table
we find that Pine Bridge and DSPBR Worldfunds are significantly differ from with other funds expect the
Quantum fund.

Table # 5
Homogeneous subsets

Investment cat N Subset for alpha = 0.05

1 2
DSPBR 889 0.0063
Pine Bridge 889 0.0063
Quantum 889 0.9752 0.9752
Physical 889 1.4505 1.4505
 Reliance 889 1.8849
GoldBee 889 1.9560
Kotak 889 1.9665
UTI 889 1.9957
Sig. 0.124 0.306

The Table #5, represents the homogenous subsets test which will divide the groups into sub groups.
It basically reflects the same information as in the previous table. Here Pine Bridge DSPBR World and
Quantum are grouped together because they do not differ from each other. Physical, Gold Bee, UTI, Kotak
and Reliance are also grouped together because they do not differ from each other.

IV. Conclusion:
This study examined the performance of the return of Physical Gold, Gold ETFs and Gold MFs
collected from the data MCX, NSE and SMC Trade online respectively. The collected data were employed
using statistical tools such as descriptive statistics and ANOVA. The result derived from the ANOVA test
proved that there is a significant difference among the Gold ETFs, Gold Mutual Fund and Physical form of
Gold respectively. The Descriptive statistics shows the return of Gold ETFs is higher than the Physical Form
of Gold and also the Gold Mutual Fund. While Gold ETFs gained around 1.9 per cent, the Gold Mutual Fund
performed very badly with around 0.006. Finally it is proved empirically that making investment in Gold
related assets viz. Gold ETFs are more profitable compared to investing in Gold Mutual Fund investment.

Reference
1. Retrieved September 22, 2012, from smc trade online: http://www.smctradeonline.com/mutual-fund-
nav-history.aspx
2. Retrieved September 22, 2012, from mcx India:
http://www.mcxindia.com/SitePages/SpotMarketHistory.aspx?sLinkPage=Y
3. Retrieved September 22, 2012, from nseindia.com:
http://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?
4. Gold equity funds investors miss rally. (2012, September 17). Deccan Chronicle daily English
newspaper, p. 6.