Big difference in gold ETF and SGB

I was looking at HDFC/SBI gold ETF and SGB NOV24 prices, they were ~4334 and 4850. I believe both are for 1g of gold. Why such huge difference? The march low for both were at 3600.

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@Bhuvan can you.

The ETFs have accumulated fees which is why their NAV is so much lower than the market price of gold. If you give 1000 units to the ETF and ask for delivery of 1kg of gold, you will have to pay them accumulated fees before they give you physical gold. The low unit price does not correspond to buying cheaper gold through ETFs, in fact, it’s often much more expensive than physical gold after accounting for fees. Best to always go the AMC website and find the NAV for the unit, which should be compared to the market price. Buy if market price is cheaper than the NAV.

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I don’t think any ETFs give you physical gold delivery

All Gold ETFs allow taking physical Gold delivery (given the criteria of holding a certain number of units is met (normally totaling 1kg & above)). Procedure for redemption of units into physical gold for various ETFs can be found in their Scheme Information Documents (linked below) -

  1. Nippon Gold ETF - https://www.nipponindiamf.com/InvestorServices/SIDETF/NipponIndia-ETF-Gold-BeEs.pdf (Page 30-31)

  2. SBI Gold ETF - https://www.sbimf.com/en-us/lists/sid_kim/sid%20-%20sbi-etf%20gold.pdf (Page 22)

  3. HDFC Gold ETF - https://files.hdfcfund.com/s3fs-public/SID/2020-07/HDFC%20Gold%20ETF%20(SID)%20-%20May%2029%2C%202020.pdf (Page 33)

  4. UTI Gold ETF - https://docs.utimf.com/v1/AUTH_5b9dd00b-8132-4a21-a800-711111810cee/UTIContainer/UTI%20Gold%20Exchange%20Traded%20Fund%20-%20SID%20201920190617-061429.pdf (Page 21)

  5. Kotak Gold ETF - https://www.kotakmf.com/FundDetails/View?filePath=RDpcSWRlYWxha2VcS290YWtNRlxGaWxlc1xFc3NlbnRpYWxQREZcU0lEIC0gS290YWsgR29sZCBFVEYucGRm (Page 11)

  6. Axis Gold ETF - https://www.axismf.com/axisdownload/sch_info\\Axis%20Gold%20ETF%20-%20Scheme%20Information%20Document.pdf (Page 24)

  7. ICICI Prudential Gold ETF - https://www.icicipruamc.com/docs/default-source/default-document-library/gold-etf_sid.pdf (Page 43-44)

  8. Aditya Birla Sun Life Gold ETF - https://mutualfund.adityabirlacapital.com/-/media/bsl/files/resources/forms/sid----scheme-information-documents/sid-absl-gold-etf-3105.pdf (Page 16)

  9. IDBI Gold ETF - https://www.idbimutual.co.in/Pdf/IGETF_SID_2020-01-July-2020-1014737876.pdf (Page 29)

  10. Invesco India Gold ETF - https://www.invescomutualfund.com/docs/default-source/default-document-library/invesco-india-gold-exchange-traded-fund---april-27-2020.pdf (Page 29)

  11. Quantum Gold Fund ETF - https://www.quantumamc.com/scheme-information-document-forms/quantum-gold-fund-etf/form-106 (Page 34)

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Wow. Thanks. Learnt something new today.

I found the reason for the difference was due to the cash held by fund.

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ETF holding in gold is atleast 90%. Other 10% could be cash or other asset or Gold.

In SGB, there is no cash holding… There is not even gold holdings… :joy::joy:

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SGB i dont like , because , gold means we need to invest for long term like 20 + years and we can give a gift to our children also ,
Advantage and disadvantage

SGB - lock in period is disadvantage , there is a maturity date prior that we cannot hold , for emergency we cannot withdraw some grams to liquidate , cannot invest in sudden fall in gold price to average , we cannot do SIP

GoldETF- no lock in period, we can hold forever , any time we can liquidate , can do SIP month on month , can pledge and do F&O trading

You can continue to hold your SGBs for 20 yrs. As soon as a unit matures, you can take the same money and buy the same number of new units available. There will be 0 impact due to 0 tax and u will get 50/- discount too

If you need emergency money, nowadays liquidity in the market is much better. Last I checked, u can sell at 3-4% discount only. Compare that to 4% extra u lose every year to your ETF (2.5% SGB int and 1.5% ER)

Anytime u need to buy due to crash, u can buy in secondary markets. Right now units are available at 4950 per gm!! Enough liquidity and great discount…

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ETFs don’t need to keep cash lying around like mutual funds, right?

They start with NFO, and then keep creating/destroying ETF shares through Authorized Participant (market maker).

When they need to create more stocks (due to more buy orders than sell orders, and hence buy price > NAV):

  • AP buys a basket of stocks
  • AP sends those stocks to Fund
  • Fund creates new ETF shares whose value is equal to the value of basket of stocks
  • Fund sends these ETF shares to AP
  • AP sends these ETF shares on open market.
  • AP books profits equal to (#ETF shares * Share price) - (value of basket of stocks they bought)

Similarly, when buy orders < sell orders (demand < supply and hence buy price < NAV)
AP buys shares from market, returns shares to fund, gets basket of stocks, sells shares on open market and books profit equal to (value of basket of stocks they sold) - (#ETF shares * Share price).

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Only thing is that there is no such thing as SGB for Silver. I want to buy silver too but not in physical form.

Do you think RBI will introduce SSB (Soverign Silver Bonds)?