section 2

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CHAPTER-1

DESIGN OF THE STUDYINTRODUCTION

Gold is part and parcel of India's culture and tradition. As money, jewelry, status symbol and investment, gold has played a crucial role in the lives of Indians for centuries. A family's wealth was determined on the quantity of gold and land they had. Gold is considered Lakshmi (the Hindu goddess of wealth) and a symbol of prosperity.

Traditionally and, as a religious practice, an Indian woman wears ornaments throughout her life. Gold is her metal of choice for jewelry. Usually, from childhood till the end of her life, the Indian woman will adorn herself with various gold ornaments, depending on her wealth and status. The trend in recent times is more toward platinum and white gold among the urban elite, but for the middle- and lower-class families, jewelry means only gold.

Nothing can replace the status and importance of gold in the Indian society. In south India, the first food a newborn consumes will contain gold. No wedding is complete without gold, and gold ornaments are exchanged during wedding ceremonies, no matter which religion the bride and groom may belong to.

The Akshaya Trithiya is an auspicious day in the Hindu calendar to buy gold. Devotees celebrate this day (usually in April) by buying gold. In recent years, this festival has become highly commercialized as the jewelers have started promoting the sales with discounts. Gold ornaments worth millions of rupees are purchased across the country on this day.

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However investment in physical gold is not much attractive because of high making charges, impurity, less resale value, lack of income, problems in physical storage, absence of financing, no tax advantage, subjectivity to confiscation, partial liquidity, and limited growth potential..This limitation of physical gold open door for gold Exchange Traded Funds.

As sector wise investment in gold is considered, 46% of investment is in gold, 32% in bars and coins,17%in technology and remaining 5% in gold ETFs(source:geogitcomtrade.com). Actually gold ETFs is a smarter option over any other form of gold. Many companies and banks issue gold ETFs. Efficient and smart fund managers direct us in investing in the right ETFs. But investment in gold ETF is very negligible.

This study deals with evaluating the market performance of14 gold ETFs listed in National Stock Exchange in terms of risk and returns, their comparison with corresponding gold price and proving their attractiveness over physical gold thus encouraging the people to invest in them.

This study intends to prove the attractiveness of gold ETFs over physical gold which can provide valuable investment tips to investors of the country.

STATEMENT OF THE PROBLEM

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

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the trading of units on stock exchange. In India, gold ETFs were launched mainly with objective to increase the liquidity for the better market efficiency.

Traditionally, Indians love to buy gold and they want to possess it. In fact, they hardly go for ETFs which is just a piece of paper for them. But in India, during the last few years, investment in gold ETFs has risen by Rs. 303 crore. But according to the statistics out of total investment in gold, the portions of ETFs are just 5%. Even if the investors in gold ETFs are enhanced, the percentage is very meager. This study focuses on encouraging more number of people to shift their investment to gold ETF from its physical form.

Many of the investors are in an utter confusion in selecting their ETFs, and are keen towards the opinion of fund managers. So this study sets targets to identify the most suitably managed ETF for the benefit of the investors.

Large share of gold investors ignore gold ETFs because of their rude understanding on the ETF returns. So the last problem of this study is to verify whether gold ETF provide impressive return than the unpredictable gold returns.

All these problems were successfully discussed in the study and solved through proper facts, figures, analysis and interpretation.

REVIEW OF LITERATURE

Various studies on exchange traded funds related to small and medium enterprises had been conducted in foreign countries .However, in Indian context, the number is quite few. Depending on the various issues of exchange traded funds, the review has been discussed in brief as follows:

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Mukesh Kumar Mukul, Vikrant Kumar and Sougata Ray (2012) made a study on“Gold ETF Performance: A Comparative Analysis of Monthly Returns” revealed that Gold investment has been a very important aspect for ages across the globe. This paper attempts to analyze the performance of gold Exchange-Traded Fund (ETF) with respect to risk and return against the diversified equity fund and market portfolio. The study also examines the role of gold in hedging equity investment risk. The study is based on data for the period from January 2010 to August 2011. The analysis shows that gold ETF has given good return in comparison to a diversified equity fund during the study period.

Prasanta athma (2011) has stated that Gold ETF is an emerging option of the various investment alternatives available to the investor. The low volatility of gold prices as compared to equity market, weakening of Indian Rupee against US Dollar and growing uncertainty about global economy resulted in the emergence of Gold ETF as a strong asset class. Allocation of a small portion of investment in Gold ETF would diversify the portfolio risk. The stabilization of Expense Ratio made the task of selection of the best Gold ETF option easy. Inclusion of any Gold ETF in the portfolio of assets would diversify the risk. Gold ETFs also offer the benefit of lower incidence of tax. In spite of the merits of holding Gold ETFs, the investment in the same is low due to the low awareness among the investors and the sentimental attachment of the investors towards holding gold in the physical form.

Fisher (2008) in his article mentioned that Gold Exchange-Traded Funds(ETFs) have made investing in the yellow metal very convenient and inexpensive. The study expressed that they offer a way of participating in the gold bullion market without the necessity of physical delivery of gold. The study 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

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denominations, Hedging Convenience and better holding of ETFs as compared to physical gold holdings.

Poterba & Shoven (2002)He analyze that Exchange traded funds (ETFs) are a new variety of mutual fund that first became available in 1993. ETFs have grown rapidly and now hold nearly $80 billion in assets. ETFs are sometimes described as more 'tax efficient ‘than traditional equity mutual funds, since in recent years, some large ETFs have made smaller distributions of realized and taxable capital gains than most mutual funds.

Alexander & Barbosa (2005)He investigates the optimal short-term hedging of Exchange Traded Fund (ETF) portfolios with index futures. From his investigation he said “using daily data from May 2000 to December 2004 on the four largest passive ETFs (the Spider, the Diamond, the Cubes and the Russell iShare) and their corresponding index futures we examine the performance of minimum variance hedges for efficient variance reduction and for investors with exponential utility”. Nguyen, et al (2009)He examine the opening of Exchange Traded Fund (ETF) markets in a multimarket trading environment and find that the opening trades on the American Stock Exchange (AMEX) are the most costly. This result is consistent with the market power hypothesis which suggests that the specialists use their informational advantage about the order imbalance at the open or take advantage of the inelastic demand at the open by imposing wider spreads.

OBJECTIVES OF STUDY

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To evaluate the market performance of gold Exchange Traded Funds in India since their inception

To analyze the trends in gold price movements during the post recession period

To compare the performance of gold ETFs with investment in India during post recession phase.

SCOPE AND SIGNIFICANCE OF STUDY

The study is beneficial for following parties:

Investors

The study helps the investors in shifting their investment option; from physical gold to gold ETF.It directs their way in choosing the right ETF by evaluating them in terms of their performance.

Investment firms

Investment firms which offer gold ETF schemes to the investors get an opportunity to compare the performance of their schemes with that of others. This will help to formulate and implement needed strategies to attract the potential investors to their scheme.

Policy makers

The outcome the study helps the policy makers to design suitable policies to provide conducive environment for gold ETF

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investors in India. It also help them to think of starting ETF on other metals.

METHODOLOGY

Sample and data The study was purely based on the secondary data. Financial information with regard to ETFs was collected from the site of National Stock Exchange.14 gold ETFs listed in NSE was taken for study. Opening price, closing price, high price, low price, and last graded price, total traded quantity, and turnover of ETFs were considered. Closing value has taken as major input to data analysis.

Period of study Only four year have been completed since the inception of Gold ETF schemes in India. So the study has taken this 4 year period from 2010-2014.data was initially collected on daily basis, sorted into spreadsheet and then converted in to monthly basis and analysis was done on that basis.

Tool for analysis The tooling of the study was done using descriptive statistics. Descriptive statistics is a set of brief descriptive coefficients that summarizes a given data set, which can either be a representation of the entire population or a sample. The measures used to describe the data set are measures of central tendency, measures of variability or dispersionAnalysis was done in term of:

Mean Median Standard deviation

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Sqweness Kurtosis Co-efficient of variation

LIMITATION OF STUDY

The analysis was based on secondary data. So accuracy of study depends on the accuracy of source of data collection.

The study is limited to gold ETFs available only in India. The study was completed in a short span of time, so it has

its own limitation ETF is considered to be a vast topic. So any further

shortcomings might be due to our lack of experience in this field.

CHAPTER-2

9

EXCHANGE TRADED FUNDS INVESTMENT- A DISCUSSION

Nobody is born rich and not everybody goes from rags to riches in a matter of weeks or months. A handful of people seem to turn everything they touch into gold. Most others are either barely comfortable or spend their life time struggling. Many want to be rich are financially free, but never achieve that although we all have a potential to do so. It is necessary to control and fulfill our financial destiny, by sound investment planning and executing the investment plan even better.An investment is the commitment of fund made with an expectation of some positive returns. Investment means purchase of some financial asset that yield a return which is proportionate to the risk assumed over some future period of time. It was an economic activity that fascinates the people from all walks of life regardless of their education, status, occupation, family background etc. Sharpe defines investment as “investment is a sacrifice of certain present value for some uncertain future value”. In the words of Murad “investment is an essential requirements for full employment and keep to prosperity in a capital economy

CHARACTERISTICS1. Return: an investment is made with an expectation of earning a return .the amount of return from an investment depends on maturity period and several other factors. The returns may be earned in the form of dividend or interest in the form of capital appreciation.

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2. Risk: risk in an investment relates to the variability of returns. It varies from investment to investment. Higher the return expected more will be the risk and vice versa.3. Safety: safety of the investment refers to certainty of return of initially invested funds; capital should be paid back without loss of value and delay.4. Liquidity: an investment which is easily saleable or marketable is said to be possessing liquidity. An investment is said to be marketable if

It can be transacted quickly The cost of transaction is less The price change between two successive transactions is

negligible5. Convenience: by convenience we mean the ease with which the investment can be made and managed. It varies widely.6. Tax benefits: Some investment provides tax benefits and some do not. Tax benefits are of three types

Initial tax benefits Continuing tax benefits Terminal tax benefits

OBJECTIVES1. Safety: safety investments are the best means of preserving principal along with a specified rate of return. Safest investments includeCapital market Money marketGovernment bonds Treasury billsCorporate bonds Certificate of Deposit Commercial paper

2. Rate of return: rate of return is the ratio of the sum of annual income and price appreciation to the purchase price of

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investment. It includes two parts namely, annual income and capital gain or loss.

Rate of retun= Annual income+(Ending price−Purc hase price)Purc hase Price

3. Growth of capital: capital gain refers to the gain when the security is sold for a price that is higher than its purchase price. Selling at a lower price is referred to as capital loss. It is closely associated with the purchase of equity shares, particularly growth securities.

4. Risk: risk of an investment refers to the variability of rate of return. It is the deviation of outcome of an investment from its expected value. The challenge of an investor is to achieve higher return while keeping the risk at lowest possible level.

5. Marketability: an investment which is easily saleable or marketable is said to be possessing liquidity. An investment is said to be marketable if

It can be transacted quickly The cost of transaction is less The price change between two successive transactions is

negligible

6. Tax benefits: Some investment provides tax benefits and some do not. Tax benefits are of three types

Initial tax benefits Continuing tax benefits Terminal tax benefits

7. Hedge against inflation: a good investment act as a weapon for hedging the effects or impact of inflation

AVENUES OF INVESTMENT

1. Non marketable financial assets

2. Bonds3. Mutual funds4. Real estates

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CHART.2.1

INVESTMENT PROCESS

1. Non marketable financial assets

2. Bonds3. Mutual funds4. Real estates

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CHART.2.2InvestmentAvenues

CurrentYield

CapitalAppre.

Risk Liquidity

TaxPlanning

Convenience

EquityShares

Low High High FairlyLarge

Ex.for longTermCap. Gain

High

Non convertibleDebentures

High Negotiable

Low Average

Nil High

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Equity schemes(ELSS)

Low High High High Ex. forSpecifiedSchemes

VeryHigh

DebtSchemes

High Low Low High Nil VeryHigh

BankDeposits

Moderate

Nil Negligible

High Tax benefitOnly forTax saving F.D

VeryHigh

PublicProvidentFund

Nil High Nil Average

Sec.80(c)Benefit

VeryHigh

LifeInsurancePolicies

Nil Moderate

Nil Average

Sec 80(c)Benefit

VeryHigh

ResidentialHouse

Moderate

Moderate

Negligible

Low Only forSelfResidentialBuilding

Fair

Gold & Silver NIL Moderate

Average Average

NIL Average

SUMMARY EVALUATION OF VARIOUS INVESTMENTS

TABLE.2.1.

EXCHANGE TRADED FUNDSExchange traded funds are baskets of securities 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.

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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.

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.

HISTORY Etfs had their genesis in 1989 with Index Participation Shares, an S&P 500 proxy that traded on the American Stock Exchange and the Philadelphia Stock Exchange. This product, however, was short-lived after a lawsuit by the Chicago Mercantile Exchange was successful in stopping sales in the United States. Similar product, Toronto Index Participation Shares, started trading on the Toronto Stock Exchange in 1990. The shares, which tracked the TSE 35 and later the TSE 100 stocks, proved to be popular. The popularity of these products led the American Stock Exchange to try to develop something that would satisfy SEC regulation in the United States.

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Nathan Most and Steven Bloom, executives with the exchange, designed and developed Standard & Poor's Depositary Receipts , which were introduced in January 1993 Known as spdrs or "Spiders", the fund became the largest ETF in the world. In May 1995 they introduced the midcap spdrs. Barclays Global Investors, a subsidiary of Barclays plc, entered the fray in 1996 with World Equity Benchmark Shares, or WEBS, subsequently renamed ishares MSCI Index Fund Shares. WEBS tracked MSCI country indices, originally 17, of the funds' index provider, Morgan Stanley. WEBS were particularly innovative because they gave casual investors easy access to foreign markets. While spdrs were organized as unit investment trusts, WEBS were set up as a mutual fund, the first of their kind.

In 1998, State Street Global Advisors introduced "Sector Spiders", which follow nine sectors of the S&P 500. Also in 1998, the "Dow Diamonds" were introduced, tracking the famous Dow Jones Industrial Average. In 1999, the influential "cubes”, were launched attempting to replicate the movement of the NASDAQ-100.

In 2000 Barclays Global Investors put a significant effort behind the ETF marketplace, with a strong emphasis on education and distribution to reach long-term investors. The ishares line was launched in early 2000. Within 5 years ishares had surpassed the assets of any other ETF competitor in the U.S. and Europe. Barclays Global Investors was sold to Blackrock in 2009. The Vanguard Group entered the market in 2001.

Since then etfs have proliferated, tailored to an increasingly specific array of regions, sectors, commodities, bonds, futures, and other asset classes. As of September 2010, there were 916 etfs in the U.S., with $882 billion in assets, an increase of $189 billion over the previous twelve months.

TYPES

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INDEX ETFIndex funds are ETF that hold securities and to attempt to replicate the performance of a stock market index. An index fund seeks to track the performance of an index by holding in its portfolio either the contents of the index or a representative sample of the securities in the index

COMMODITY ETF Commodity etfs invest in commodities, such as precious metals and futures. Among the first commodity etfs were gold exchange-traded funds, which have been offered in a number of countries. The idea of a Gold ETF was first officially conceptualized by Benchmark Asset Management Company Private Ltd in India when they filed a proposal with the SEBI in May 2002.

LIQUID ETF Liquid etfs are funds whose unit price is derived from Money market securities comprising of government bonds treasury bonds, call money market etc. 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.

ADVANTAGES Trade like stocks - You can buy and sell an ETF during

market hours on a real time basis as well as put advance orders on purchase such as limits or stops. In case of conventional mutual funds, purchase or sale can be done only once a day after the fund NAV is calculated.

Low cost of investment - The passive investment style with low turnover helps keep costs low. Etfs are known to have among the lowest expense ratios compared to others schemes.

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Simple and transparent - The underlying securities are known and quantities are pre-defined (In case of conventional mutual fund schemes, one need to wait for the monthly factsheet). No form filling is required if you transact in the secondary market. Investment can be made directly from the fund house or the exchange.

Supports small ticket investments - etfs are a great tool for investors wanting to start with a small corpus. The minimum ticket size is 1 unit (in case of IIFL Nifty ETF, 1 unit is approximately 1/10th of Nifty level, i.e Rs500, when Nifty is at 5000). Premium and discount also tends to be higher in the futures segment, than in etfs.

Etfs are taxed like stocks - Investors can take advantage of special rates for short term and long-term capital gains.

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 securities, 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.

Market exposure and diversification – etfs provide an economical way to rebalance portfolio allocations and to "equitize" cash by investing it quickly. An index ETF inherently provides diversification across an entire index. Etfs offer exposure to a diverse variety of markets, including broad-based indices, broad-based international and country-specific indices, industry sector-specific indices, bond indices, and commodities

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GOLD EXCHANGE TRADED FUNDS

Indians account for 23 per cent of the world's total annual demand for gold. And now we have got one more way to invest in the yellow metal. Benchmark Mutual Fund launched India's first gold Exchange-Traded Fund (ETF) on 15 February followed by UTI Mutual Fund's gold scheme on 1 March 2007. Others like Kotak Mutual Fund and Prudential ICICI Mutual Fund have also firmed up plans and are expected to follow suit.Gold etfs have been a much-anticipated development. These are expected to address issues of higher prices, purity, costs of insurance and storage, and liquidity associated with investing in physical gold. What does this mean for an investor? Should gold be included in his portfolio? What value will it add to his holding and overall investment strategy? These are questions that will determine whether gold etfs will be as big a success in India as they have been in countries such as the US, the UK and Switzerland.

MEANINGGold etfs are open-ended mutual fund schemes that will invest the money collected from investors in standard gold bullion (0.995 purity). The investor's holding will be denoted in units, which will be listed on a stock exchange.These are passively managed funds and are designed to provide returns that would closely track the returns from physical gold in the spot market.An investor can buy and redeem the units either directly from the mutual fund, subject to certain stipulations, or from the stock exchange.

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HISTORYThe first gold exchange-traded product was Central Fund of Canada, a closed-end fund founded in 1961. It later amended its articles of incorporation in 1983 to provide investors with an exchange-tradable product for ownership of gold and silver bullion. It has been listed on the Toronto Stock Exchange since 1966 and the AMEX since 1986. The idea of a gold exchange-traded fund was first conceptualized by Benchmark Asset Management Company Private Ltd in India when they filed a proposal with the SEBI in May 2002. However it did not receive regulatory approval at first and was only launched later in March 2007. The first gold ETF actually launched was Gold Bullion Securities, which listed 28 March 2003 on the Australian Securities Exchange. Graham Tuck well, the founder and major shareholder of ETF Securities, was behind the launch of this fund and enlisted N.M. Rothschild & Sons (Australia) Ltd, Citibank and Deutsche Bank as market makers on the ASX. ADVANTAGES1. They're virtual.When you buy gold etfs, though you own a certain amount of gold, you don't actually get delivery of the yellow metal. You can store the units virtually in your demat account and save yourself the trouble of having to protect your gold from prying eyes of greedy relatives, robbers and looters.2. They're pure.Gold etfs only deal in 99.5 per cent purity gold. So by choosing them over physical gold, you spare yourself the consequences of misplaced trust.

3. They're priced right.We are not likely to buy gold at inflated prices. The problem with precious metals is that there is a lot of scope for price

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disparities (read overpricing). While one jeweler may offer the same quantity of gold at a certain price, another would have a different tag attached to it. If your bargaining skills are not good enough, gold etfs are the way to go.4. They're more tax efficient.The taxation system for gold etfs is the same as for non-equity mutual funds. If you hold gold etfs for more than a year, you pay a long-term capital gains tax of 10 per cent without indexation or 20 per cent with indexation, whichever is lower, on the profits made. Gold etfs held for less than a year attract short-term capital gains tax5. They’re easier to sell. Physical gold bought from banks cannot be sold back to them. That bought from jewellers comes with an unfair 'commission' charged when you decide to sell. With gold etfs, you don't have to go to 10 different jewellers who will fuss over the quality and the price before handing you your spoils. They're more liquid than physical gold and fetch you the market price.6. They're available in small sizes.Gold etfs are available in small denominations and you don't have to have lots of spare cash to invest in gold anymore .One gold ETF unit represents 1 gram of gold. You can even buy half a gram of gold if that's all you can afford this month. And watch your gold pile and investments grow at the rate you choose.

7. They're wealth tax-free.Physical gold attracts wealth tax if you're holding more than a certain amount. At the moment, that amount is Rs 15 lakh. But there is no such taxation for gold held through gold etfs. The cash you save on tax you can always invest in more gold... Etfs, of course

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LIST OF GOLD ETFSGold etfs listed in national stock exchange (considered for study) is as follows:

TABLE.2.2Scheme Name Symbol Objectives

Managed By

Axis Gold ETF AXISGOLD

To generate returns that is in line with the performance of gold.

Axis Mutual Fund

Goldman SachsGold Exchange Traded Scheme GOLDBEES

To provide returns those, before expenses, closely correspond to the returns provided by domestic price of gold through physical gold.

Goldman Sachs Mutual Fund

UTIGOLD Exchange Traded Fund

GOLDSHARE

To endeavour to provide returns that, before expenses, closely track the performance and yield of Gold. However the performance of the scheme may differ from that of the underlying asset due to racking error.

UTI Mutual Fund

HDFC Gold Exchange Traded Fund

HDFCMFGEF

To generate returns that is in line with the performance of gold, subject to tracking errors.

HDFC Mutual Fund

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ICICI Prudential Gold Exchange Traded Fund IPGETF

ICICI Prudential Gold Exchange Traded Fund seeks to provide investment returns that, before expenses, closely track the performance of domestic prices of Gold derived from the LBMA AM fixing prices.

ICICI Prudential Mutual Fund

Kotak Gold Exchange Traded Fund

KOTAKGOLD

To generate returns those are in line with the returns on investment in physical gold, subject to tracking errors.

Kotak Mutual Fund

Quantum Gold Fund (an ETF)

QGOLDHALF

To provide returns those, before expenses, closely correspond to the returns provided by the domestic price of gold.

Quantum Mutual Fund

Reliance Gold Exchange Traded Fund RELGOLD

To provide returns that closely correspond to returns provided by price of gold through investment in physical Gold (and Gold related securities 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.

Reliance Mutual Fund

Religare Gold Exchange Traded Fund

RELIGAREGO

To generate returns that closely corresponds to the returns provided by investment in physical gold in the domestic market, subject to tracking error.

Religare Mutual Fund

SBI Gold Exchange Traded Scheme

SBIGETS 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

SBI Mutual Fund

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scheme may differ from that of the underlying asset due to tracking error.

Birla Sun Life Gold ETF

BSLGOLDETF

The investment objective of the Scheme is to generate returns that are in line with the performance of gold, subject to tracking errors.

Birla Sun Life Mutual Fund

IDBI Gold Exchange Traded Fund IDBIGOLD

To invest in physical gold with the objective to replicate the performance of gold in domestic prices. The ETF will adopt a passive investment strategy and will seek to achieve the investment objective by minimizing the tracking error between the Fund and the underlying asset.

IDBI Mutual Fund

Motilal Oswal most Shares Gold ETF MGOLD

The investment objective of the Scheme is to provide return by investing in Gold Bullion.

Motilal Oswal Mutual Fund

Canara Robeco Gold Exchange Traded Fund CRMFGETF

The investment objective of the Scheme is to generate returns that are in line with the performance of gold, subject to tracking errors.

Canara Robeco Mutual Fund

CHAPTER-3

RISK AND RETURN ANALYSIS: A DISCUSSION OF THEORY AND MODEL

Investment decisions are influenced by various motives. Some people invest in a business to acquire control and enjoy the

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prestige associated with it. Some people invest in expensive yachts and famous villas to display their wealth .most investors however are largely guided by the motive of earning a return a return on their investment. For earning the return the investor have to invariably bear some risk. In general risk and return go hand in hand .while the investors like the return they abhor the risk. Investment decision there involve the tradeoff between the risk and return .since the risk and the return are central to the investment decisions ,we must clearly understand what risk and return are how they should be measured . CONCEPT OF RISK Risk means the chance of loss. Normally the term risk is different from the term uncertainty. Usually probability of losing something is risk. But in the case of a certainty nothing can be predicted, so no probability computation is possible. But in security analysis we use both the term risk and uncertainty inter changeably. Here risk means the uncertainty surrounding the future stream of return and repayment of capital. If an investment’s returns are fairly stable, it is considered to be a low risk investment. But when the return from an investment is fluctuating widely then it is called risky investment. The risk and return are positively correlated. Higher the risk higher will be the return and lower the risk lower will be the return.According to john. J. Hampton “risk is the chance of future loss that can be foreseen”

ELEMENTS OF RISK

The elements of risk may be broadly classified into two groups.

1. Systematic risk - this type of risks is external to a company and affects a large no. of securities simultaneously. These risks are mostly an uncontrollable in nature. Risk produced by these external factors is known as systematic risk.

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2. Unsystematic risk - there are certain factors which are internal to the company and affect only those particular companies. The risks due to these factors are called unsystematic risk. These risks are controllable in nature. By building a powerful portfolio we can diversify these risks. So

Total risk = systematic risk + unsystematic risk (specific risk)

TYPES OF SYSTEMATIC RISK

Systematic risk is mainly divided into three,

Interest rate risk: it is the devaluation in bond prices due to the increase in the market interest rate. It particularly affects debt securities like bonds and debentures. It also affects equity shares. When the market interest rate increases, the debt instruments become more attractive. Then the investors shall dispose their shareholdings and utilize the proceeds for making investment in debt instruments. This action cause decline in the value of stocks.

Market rate risk: market risk is the increased variability of security returns due to the alternating movements of the share markets. A general decline in share price is referred to as bearish trend (downward trend).general rice in share price is called bullish trend (upward trend). Due to these variations in stock market movement the investors return will also be varied.

Purchasing power risk: purchasing power risk refers to variations in investor returns due to increase in inflation rate. The two important causes of inflation are increase in the cost of production and increase in demand for goods. When demand is increasing but supply cannot be increased the price of the goods increases. The inflation due to this excess demand is called demand pull inflation. Similarly when the cost of production increases the price will be increased which lead to inflation and this inflation is called cost push inflation. Both of

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these inflations shall affect the purchasing power of currency there by the value of all investment in an economy.

TYPES OF UNSYSTEMATIC RISK (SPECIFIC RISK)

There are mainly two types of unsystematic risk.

Business risk: business risk means a risk due to the poor operating conditions faced by a company. When a company’s operating conditions become worse etc. The operating cost will be increased which in turn bring into a reduction in its operating income. Since this risk element is associated with the securities of only poor performing companies, we can avoid it through portfolio diversification.

Financial risk: the increase or decrease in earnings per share due to the presence of debt capital in the total capital structure of a company is referred to as financial risk. When there is a debt component in the capital structure of a company, there may be variability in the returns available to the equity share holders. If the companies rate of return higher than the interest rate payable on the debt, earning per share would increase. If the rate of return is lower than the interest rate earning per share would be decreased because interest is a compulsory payment.

TOOLS FOR MEASURING THE RISK

1. Variance and standard deviation(σ ¿

Risk refers to dispersion of the variable. Standard deviation is the value of the variables around its mean. It is the square root of the sum of squared deviation from the mean dividend by the no. Of observation and it is the square root of variance.

Variance Σ2=∑I=0

N

(ri−¿R)2

N−1¿

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Σ=√Σ2

Σ2=variance of return Σ=standard deviationof return Ri=return¿ the stock∈period (I=1,2… ..n ) R ¿ arithmetic return n = number of periods

2. Beta methodThe systematic risk of an investment is measured by co-variance of an investment’s return with returns of market. Once the systematic risk of an investment is calculated it is then divided by the market risk, to calculate a relative risk measure of systematic risk. This relative measure of risk is called the ‘beta’ and these usually represented by the symbol β.Interpretation of β is as follows.

1. Β >1- aggressive shares2. Β<1-defensive shares3. Β=1-neutral shares

3. Correlation methodUsing the correlation method formula for beta calculation is given below.

β=RℑΣ IΣM

ΣM2

β=¿ beta of a investment in sharesRℑ=correlationco−efficient of the return in the market ΣI=sd of t hereturnof stockΣM=sd of return of market index ΣM

2 =varience of returns on t hemarket

4. Regression method

29

This method establishes a linear relationship between dependent variable and independent variable.Regression equation will be

Y=∝+βx

Y=percentage change in price of specific securityX=percentage change in market price index

= intercept of regression lineΑ=slope of regression lineΒ

∝=Ӯ−β X

Ӯ , X=arithmeticmean

Β=N ∑xy−(∑x)(∑ y )±√b2−4ac

N ∑X 2−(∑x )2

Alpha: it is the measure of residual risk. It is sometimes called ‘selecting risk’ of some market index. Technically speaking alpha is the intercept in the estimation model. It is expected to be equal to the risk free rate times(1-β)

5. Capital Asset Pricing Model (CAPM) CAPM is the model that determines the relationship between risk and expected return and that is used in the pricing of risky securities. It relates the return trade off individual asset to the market returnCAPM provides the required return based on the perceived level of systematic risk of an investmentri=rf+β i(rm−rf)

r f=risk freerate

β i=beta of the security

rm=market return

30

CONCEPT OF RETURNReturn is the gain/income from the investment. We can distinguish between the realized return and expected returns. The expected returns are the returns hoped to get before the investment is made or while making. Realized return is the return actually earned

CHART.3.1

MEASUREMENT OF TOTAL RETURN

R=C+(PE−PB)

PB

R=total returnthe

period

C=cash payment recieved during the period

PE=ending price of theinvestment

PB=begnning price

realised returnchange in the price of asset

31

TOOLS FOR THE MEASUREMENT OF RETURN

Historical return:

1. Cummulative wealth indexA return measure like total return reflects changes in the level of the wealth. For some purposes it is more useful to measure the level of wealth rather than the changes in the level of wealth. To do this we must measure the cumulative effect of the returns over time.

Equation of the return through the cumulative effect is given below

Rn= CWInCWI n−1

−1

Rn=total returnfor period n

CWI=cumulative wealthindex

CWIn=WI 0 (1+R1) (1+R2)…… (1+Rn)WI 0= t h ebegnning index at t he end of n

2. Return relative

Return relative helps in measuring the return in a slightly different manner. This is particularly true when a cumulative wealth index has to be calculated, because in such calculations negative returns cannot be used. The concept of return relative is used in such cases

returnrelative=C+PE

PB

32

¿1+totalreturn

3. Summary statistics

In the investment we need summary statistics of series of total returns. The two commonly used summary statistics are arithmetic mean and geometric meanArithmetic meanThe arithmetic mean of a series of total return is defined as

R=∑I=0

n

r i

N

R=arithmeticmean

Ri=ith value of the totalreturn ¿

n=number of total return

Geometric mean

Gm is the nth root of the product resulting from multiplying a series of return relatives minus one. It describe the true average return

GM=¿) (1+R2)……..(1+Rn)1n−1

4. Real returns

Returns are of two types, nominal return and real return. To convert the nominal return in to real return an adjustment has to be made for the factor of inflation

real return=1+nominal return1+inflation rate

Expected return:

33

1. The probability distribution

The probability distribution of an event represents the likelihood of its occurrence. It helps to determine the chance of rising or falling of stock priceBased on probability distribution, the rate of return can be computed by using

Expected rate of return Standard deviation of return

2. Expected rate of return

It is the weighted average of all possible returns multiplied by their respective probabilities

E(R)=∑i=0

n

RiPi

E (R )=expected return¿ the stock

Ri=return¿ stock under state i

Pi=probability that the state i occurs

N¿number of possible states

4. Standard deviation of return

Standard deviation of return can be calculated through following equationσ 2=∑Pi (Ri−E (R ))2

σ 2=varience

Ri=returnfor the ith possible outcome

Pi=probability associated with theith possible outcome

E (R )=expected return

2. Continuous probability distribution

34

In a continuous probability distribution probabilities are assigned to intervals between two points on a continuous curve and thus the return is calculated normal distribution a continuous probability distribution is commonly used, resembles a bell shaped curve. It appears that the stock returns at least over short time intervals are approximately normally distributed.

All the tools discussed in this chapter have a crucial role in evaluating a portfolio and they direct an investor in selecting the right investment option.

CHAPTER-4DATA ANALYSIS AND

INTERPRETATIONDATA ANALYSISThe project on (topic) is purely based on secondary data. The data to conduct this study was obtained from the site of National Stock Exchange (NSE). Financial details about 14 gold

35

ETFs listed in NSE, from 1st January 2010 to 31st November 2013 were collected and then sorted using spread sheet. Tooling was done through default software programme. Indicators with regard to the performance of ETFs and corresponding gold price were calculated by tooling, then for data analysis and interpretation.This chapter deals with the tabulation, comparison, analysis and interpretation of gold ETFs in terms of the following factors

Mean return Standard deviation(volatility) Skewness (normality) Kurtosis Coefficient of variation(c.v)

Mean return

Mean return is the average that represents the whole returns by one figure. Higher the mean, higher will be the return given by the ETF and vice versa. In this study ranks are given to the ETFs on basis returns (higher the return higher the rank)Standard deviation (S.D) (volatility)

Standard deviation is the square of the square root of the mean of the square of the deviations of all values of a series from their arithmetic mean. It is the square root of the variance. It shows how much variation is there from the mean return .lower the volatility lower, better the ETF. Just like returns we also rank S.D (lower the volatility, higher the rank)Skewness (normality)

Skewness measures degree of normality in asset returns. Skewness coefficient of zero denotes the normally distributed asset returns. Skewness coefficient of greater than unity indicates extreme asymmetry. Skewness is said to be positive (mean>mode) when the number of increases in the returns of ETFs is less. Skewness is said to be negative (mean<mode)

36

when the number of increases in returns is high. Negative skewness is better for an ETF.Kurtosis

Kurtosis indicates whether the returns is flat topped or peaked. When the returns is more peaked than the normal curve (i.e.β>3) it is called lepto kurtic that means, range of variation in the return is less or narrow. It is favorable for an investor. When the returns is more flat topped than the normal curve (i.e. β<3) it is called platy kurtic that means, range of variation in the return is high or wide.Co-efficient of variation

It is a relative measure of dispersion which compares variability with averages. It is useful in analyzing price variation in asset market where the investors are giving importance to both risk and return. The inverse of co-efficient of variation shall give us the amount of return for every unit of risk element.

37

RETURN ANALYSIS COMPARISON OF ETFS IN TERMS OF DAILY RETURN IN THE

YEAR 2010 COMPARISON OF ETFS IN TERMS OF DAILY RETURN IN THE

YEAR 2011 COMPARISON OF ETFS IN TERMS OF DAILY RETURN IN THE

YEAR 2012 COMPARISON OF ETFS IN TERMS OF DAILY RETURN IN THE

YEAR 2013 COMPARISON OF ETFS IN TERMS OF OVERALL RETURN

38

TABLE.4.1.COMPARISON OF ETFS IN TERMS OF DAILY RETURN IN THE YEAR 2010

In the year 2010 HDFCMFGETF gives highest return for investment. ETFs RELIGAREGO, IPGETF, KOTAKGOLD, GOLDSHARE, and GOLDBEES also give impressive return. But AXISGOLD gives less return compared to others

VARIABLE MEAN

RANK

HDFCMFGETF 0.115 1

RELIGAREGO 0.112 2

IPGETF 0.091 3

KOTAKGOLD 0.081 4

GOLDSHARE 0.081 4

GOLDBEES 0.081 4

SBIGET 0.08 5QGOLDHALF 0.08 5RELGOLD 0.08 5AXISGOLD 0.06

4 6

39

TABLE.4.2.COMPARISON OF ETFS IN TERMS OF DAILY RETURN IN THE YEAR 2011

In the year 2011, QGOLDHALF hold rank first in terms of returns. Other ETFs except IDBIGOLD gives almost same rate of return.

TABLE.4.3.COMPARISON OF ETFS IN TERMS OF DAILY RETURN IN THE YEAR 2012

VARIABLE MEANRANK

QGOLDHALF 0.143 1BSLGOLDETF

0.1262

SBIGET 0.114 3RELGOLD 0.114 3KOTAKGOLD

0.1143

RELIGAREGO

0.1134

HDFCMFGETF

0.1115

GOLDBEES 0.111 5AXISGOLD 0.111 5GOLDSHARE

0.1115

IPGETF 0.111 5IDBIGOLD -

0.203 6

40

VARIABLE MEAN RANK

CRMFGETF 0.085 1

KOTAKGOLD 0.063 2

HDFCMFGETF 0.049 3

IPGETF 0.047 4

BSLGOLDETF 0.046 5

AXISGOLD 0.045 6

RELGOLD 0.044 7

GOLDSHARE 0.044 6

QGOLDHALF 0.044 6

GOLDBEES 0.043 7

MGOLD 0.043 7

IDBIGOLD 0.043 7

SBIGET 0.041 8

In the year 2012 CRMFGETF delivered more returns than all other ETFs that given by in the group. This happened during the inception year of the fund itself. Almost all other funds showed similar performance of returns during that year.

41

TABLE.4.4.COMPARISON OF ETFS IN TERMS OF DAILY RETURN IN THE YEAR 2013

In the year 2013 was not promising for gold ETF investors in India. Only four funds; IDBIGOLD, BSLGOLDETF & GOLDBEES & CRMFGETF generated positive return which is in fact marginal only. CRMFGETF which was ranked first in the previous year made positive return even if it was much less compared to that year.GRAPH.4.1.RETURN PERFORMANCE OF ETF SCHEMES:

INDIVIDUAL VIEW

VARIABLE MEAN RANK

IDBIGOLD 0.002 1BSLGOLDETF 0.002 1GOLDBEES 0.002 1CRMFGETF 0.001 2MGOLD -0.001 3RELGOLD -0.001 3RELIGAREGO -0.003 4IPGETF -0.003 4AXISGOLD -0.004 5KOTAKGOLD -0.004 5QGOLDHALF -0.004 5HDFCMFGETF -0.004 5SBIGET -0.005 6GOLDSHARE -0.020 7

42

idbi IDBIGOLD ipgr IPGETFbsl BSLGOLDETF axis AXISGOLD

goldbees GOLDBEES kotak KOTAKGOLDcrmf CRMFGETF qgold QGOLDHALF

mgold MGOLD hdfc HDFCMFGETFrel RELGOLD sbi SBIGET

religar RELIGAREGO goldshare GOLDSHARETABLE.4.5.TABLE SHOWING MEAN, MEDIAN, MAXIMUM &

MINIMUM RETURNS OF ETFS FOR AN OVERALL PERIOD OF 4 YEARS

VARIABLE MEAN

MEDIAN

MINIMUM

MAXIMUM

SBIGET 0.05 0.041 -5.849 7.088

-6-4-2 0 2 4 6 8

2011

sbi

-10-8-6-4-2 0 2 4 6

2011

gold

-10-8-6-4-2 0 2 4 6

2011

rel

-10-8-6-4-2 0 2 4 6

2011

religar

-8-6-4-2 0 2 4 6

2011

qgold

-8-6-4-2 0 2 4

2011

mgold

-8-6-4-2 0 2 4 6

2011

kotak

-10-8-6-4-2 0 2 4 6

2011

ipgr

-8-6-4-2 0 2 4 6

2011

idbi

-10-8-6-4-2 0 2 4 6

2011

hdfc

-8-6-4-2 0 2 4 6

2011

goldshare

-10-8-6-4-2 0 2 4 6

2011

goldbees

-10-8-6-4-2 0 2 4 6 8

10

2011

crmf

-10-8-6-4-2 0 2 4 6

2011

axis

-8-6-4-2 0 2 4 6

2011

bsl

43

9RELIGAREGO

0.066 0.050 -9.156 5.321

RELGOLD 0.060 0.043 -8.942 4.200

QGOLDHALF

0.067 0.062 -6.788 4.449

MGOLD 0.019 0.038 -7.570 3.524

KOTAKGOLD

0.065 0.046 -7.946 4.073

IPGETF 0.057 0.040 -8.628 4.357

IDBIGOLD 0.010 0.015 -7.146 5.167

HDFCMFGETF

0.060 0.005 -9.371 5.949

GOLDSHARE

0.055 0.034 -7.895 5.149

GOLDBEES 0.061 0.067 -8.335 4.275

CRMFGETF 0.040 0.000 -8.146 8.491

AXISGOLD 0.053 0.028 -8.064 5.222

GOLDSHARE

0.050 0.000 -7.377 5.552

Maximum rate of growth on daily basis (8.491) was made by CRMFGETF during the four year study period of 2010-2014.Almost same rate of decline in the asset return happened to almost all funds in the growth. The rate of decline is comparatively less in SBIGET

TABLE.4.6. COMPARISON OF ETFS IN TERMS OF OVERALL RETURN

44

When we consider all the period together QHALFGOLD proved to be most profitable investment schemes to ETF investment in India. RELIGAREGO & KOTAKGOLD also have delivered return at that scale. MGOLD & IDBIGOLD found least performing asset during the period.

GRAPH.4.2.RETURN PEFORMANCE OF GOLD ETFS IN INDIA: OVERALL VIEW

VARIABLE MEAN

RANK

QGOLDHALF

0.067 1

RELIGAREGO

0.066 2

KOTAKGOLD

0.065 3

GOLDBEES

0.061 4

HDFCMFGETF

0.060 5

RELGOLD 0.060 6

SBIGET 0.059 7

IPGETF 0.057 8

GOLDSHARE

0.055 9

AXISGOLD

0.053 10

GOLDSHARE

0.050 11

CRMFGETF

0.040 12

MGOLD 0.019 13

IDBIGOLD 0.010 14

45

-10

-8

-6

-4

-2

0

2

4

6

8

10

2010 2011 2012 2013

sbigold

relreligarqgold

mgoldkotak

ipgridbi

hdfcgoldsharegoldbees

crmfaxisbsl

46

VOLATILITY ANALYSIS COMPARISON OF ETFS IN TERMS OF DAILY RETURN

VOLATILITYIN THE YEAR 2010

COMPARISON OF ETFS IN TERMS OF DAILY RETURN VOLATILITYIN THE YEAR 2011

COMPARISON OF ETFS IN TERMS OF DAILY RETURN VOLATILITYIN THE YEAR 2012

COMPARISON OF ETFS IN TERMS OF DAILY RETURN VOLATILITYIN THE YEAR 2013

COMPARISON OF ETFS IN TERMS OF OVERALL RETURN VOLATILITY

TABLE.4.7.COMPARISON OF ETFS IN TERMS OF DAILY RETURN VOLATILITY IN THE YEAR 2010

47

In the year 2010 returns of AXISGOLD is less volatile (even if it gives medium returns) compared other ETFs. So it is more dependable for an investor. During the year RELIGAREGO was the most volatile ETF

TABLE.4.8.COMPARISON OF ETFS IN TERMS OF DAILY RETURN VOLATILITY IN THE YEAR 2011

VARIABLE STD. DEV.

RANK

AXISGOLD 0.700 1IPGETF 0.706 2HDFCMFGETF

0.718 3

QGOLDHALF 0.799 4KOTAKGOLD 0.810 5GOLDSHARE 0.811 6RELGOLD 0.830 7GOLDBEES 0.843 8SBIGET 0.849 9RELIGAREGO

0.943 10

48

Compared to 2010, more return volatility was visible in 2011. In that year IDBIGOLD has produced consistent results for the investment.BSLGOLDETF is the most volatile ETF during the year.

TABLE.4.9.COMPARISON OF ETFS IN TERMS OF DAILY RETURN VOLATILITY IN THE YEAR 2012

VARIABLE STD. DEV.

RANK

IDBIGOLD 1.021 1QGOLDHALF 1.161 2AXISGOLD 1.173 3GOLDSHARE 1.195 4RELGOLD 1.201 5KOTAKGOLD 1.203 6GOLDBEES 1.208 7RELIGAREGO 1.211 8HDFCMFGETF 1.237 9IPGETF 1.262 10SBIGET 1.267 11BSLGOLDETF 1.615 12

49

In the year 2012 the rank of GOLDSHARE in terms of consistency is 1. Even though CRMFGETF gives high return from the day of its origin, its asset returns are highly volatile. GOLDSHARE maintained previous position in terms of risk performance.

TABLE.4.10.COMPARISON OF ETFS IN TERMS OF DAILY RETURN VOLATILITY IN THE YEAR 2013

VARIABLE STD. DEV.

RANK

GOLDSHARE 0.588 1RELGOLD 0.667 2MGOLD 0.668 3QGOLDHALF 0.679 4AXISGOLD 0.686 5SBIGET 0.688 6GOLDBEES 0.690 7HDFCMFGETF 0.696 8IPGETF 0.723 9RELIGAREGO 0.734 10IDBIGOLD 0.746 11KOTAKGOLD 0.756 12BSLGOLDETF 0.794 13CRMFGETF 1.690 14

50

The pattern of volatility

shown by gold ETF in India during the year 2013 was akin to that of in 2012.But GOLDSHARE was able to maintain its position as in previous year of 2012. This year also CRMFGETF showed more volatility in its performance

TABLE.4.11.COMPARISON OF ETFS IN TERMS OF OVERALL RETURN VOLATILITY

VARIABLE STD. DEV.

RANK

GOLDSHARE 1.097 1SBIGET 1.105 2AXISGOLD 1.136 3KOTAKGOLD 1.154 4GOLDBEES 1.173 5HDFCMFGETF 1.176 6QGOLDHALF 1.178 7MGOLD 1.222 8RELGOLD 1.229 9IDBIGOLD 1.257 10RELIGAREGO 1.268 11IPGETF 1.333 12BSLGOLDETF 1.429 13CRMFGETF 1.558 14

VARIABLE STD. DEV. RANK

GOLDSHARE 0.948 1QGOLDHALF 0.972 2KOTAKGOLD 0.995 3GOLDBEES 0.996 4SBIGET 0.998 5RELGOLD 1.003 6AXISGOLD 1.006 7MGOLD 1.007 8IDBIGOLD 1.021 9HDFCMFGETF 1.026 10RELIGAREGO 1.060 11IPGETF 1.094 12GOLDSHARE 1.272 13CRMFGETF 1.619 14

51

In the overall period comparison GOLDSHARE has maintained more stability in producing return. QHALFGOLD & KOTAKGOLD are also less volatile compared to other funds. So these funds are more beloved to risk averters. CRMFGETF was the most risky investment scheme to investors in India.

NORMALITY ANALYSIS

52

COMPARISON OF ETFS IN TERMS OF DAILY NORMALITY IN DISTRIBUTION OF DAILY RETURN (2009-2010)

COMPARISON OF ETFS IN TERMS OF DAILY NORMALITY IN DISTRIBUTION OF DAILY RETURN (2010-2011)

COMPARISON OF ETFS IN TERMS OF DAILY NORMALITY IN DISTRIBUTION OF DAILY RETURN (2011-2012)

COMPARISON OF ETFS IN TERMS OF DAILY NORMALITY IN DISTRIBUTION OF DAILY RETURN (2012-2013)

COMPARISON OF ETFS IN TERMS OF OVERALL NORMALITY IN OVERALL RETURNS

53

TABLE.4.12. COMPARISON OF ETFS IN TERMS OF DAILY NORMALITY IN DISTRIBUTION OF DAILY RETURN (2009- 2010)

VARIABLE

SKEWNESS

QGOLDHALF

-0.319

GOLDSHARE

-0.309

IPGETF -0.134

GOLDBEES

-0.119

KOTAKGOLD

-0.093

RELIGAREGO

-0.001

RELGOLD

0.202

SBIGET 0.247HDFCMFGETF

0.299

AXISGOLD

0.649

In the year 2010, the return distributions of majority of ETFs are negatively skewed, i.e. number of increases in their return is greater than their decreases. The return profile of only 4 ETFs (RELGOLD, SBIGET, HDFCMFGETF, AXISGOLD are positively skewed. i.e. the number of their increases is less compared to decreases. The return of RELIGAREGO was found almost normal during the year.

54

TABLE.4.13.COMPARISON OF ETFS IN TERMS OF DAILY NORMALITY IN DISTRIBUTION OF DAILY RETURN (2010- 2011)

In the year 2011, all ETFs except SBIGET were negatively skewed. During the year strong bullish movement is quite evident in Indian ETF market.

TABLE.4.14.COMPARISON OF ETFS IN TERMS OF DAILY NORMALITY IN DISTRIBUTION OF DAILY RETURN (2011- 2012)

VARIABLE

SKEWNESS

KOTAKGOLD

-0.699

QGOLDHALF

-0.619

BSLGOLDETF

-0.613

IPGETF -0.552GOLDBEES

-0.492

IDBIGOLD

-0.456

RELGOLD

-0.337

GOLDSHARE

-0.334

RELIGAREGO

-0.222

AXISGOLD

-0.185

HDFCMFGETF

-0.089

SBIGET 0.224

55

The year 2012 found less fortunate to the investors because most of the ETFs were positively skewed. CRMFGETF was issued for the first time during the period of that year; naturally its skewnes was high when compared to others. More decreases in asset prices were handicapped during that year, which might be due to the revival of the investor confidence with the performance of financial market across the world.TABLE.4.15. COMPARISON OF ETFS IN TERMS OF DAILY

NORMALITY IN DISTRIBUTION OF DAILY RETURN (2012- 2013)

VARIABLE SKEWNESS

GOLDBEES -0.285QGOLDHALF

-0.248

IPGETF -0.200RELGOLD -0.198SBIGET -0.195GOLDSHARE

-0.067

IDBIGOLD 0.122AXISGOLD 0.129BSLGOLDETF

0.161

HDFCMFGETF

0.200

KOTAKGOLD

0.461

MGOLD 0.499RELIGAREGO

0.593

CRMFGETF 1.361

56

In 2013, the increases outnumber the declines

significantly .hence again skewnes co-efficient found negative in respect of all the schemes under the study. while comparing table 4.15 with table 4.14we can say that the decreases was larger in magnitude on account of which the average return became marginal

TABLE.4.16.COMPARISON OF ETFS IN TERMS OF OVERALL NORMALITY IN OVERALL RETURNS

VARIABLE SKEWNESS

HDFCMFGETF

-1.756

RELGOLD -1.587GOLDBEES -1.460RELIGAREGO

-1.382

KOTAKGOLD

-1.319

GOLDSHARE

-1.304

AXISGOLD -1.201MGOLD -0.948IPGETF -0.776CRMFGETF -0.681IDBIGOLD -0.641QGOLDHALF

-0.472

SBIGET -0.341BSLGOLDETF

-0.198

57

As an aggregate of 4 years are considered, returns of most of the ETFs showed large number of increases in their returns, but

SBIGET&CRMFGETF showed the positive skewnes. So the two companies could make larger increases than that made by other companies in the group.

variable Skewness

MGOLD-0.8869

GOLDBEES

-0.8107

RELGOLD

-0.8099

KOTAKGOLD

-0.7515

HDFCMFGETF

-0.7494

GOLDSHARE

-0.6832

IPGETF-0.6803

RELIGAREGO

-0.6222

AXISGOLD

-0.5829

IDBIGOLD

-0.5631

QGOLDHALF

-0.5182

GOLDSHARE

-0.3688

SBIGET 0.04788

CRMFGETF

0.39898

58

KURTOSIS ANALYSIS PERFOMANCE OF ETF-MEASURE OF KURTOSIS(2009-2010) PERFOMANCE OF ETF-MEASURE OF KURTOSIS(2010-2011) PERFOMANCE OF ETF-MEASURE OF KURTOSIS(2011-2012) PERFOMANCE OF ETF-MEASURE OF KURTOSIS(2012-2013) PERFOMANCE OF ETFS DURING THE OVERALL PERIOD

59

TABLE.4.17. PERFOMANCE OF ETF-MEASURE OF KURTOSIS (2009-2010)

In the year 2010 returns from all the ETFs were platy kurtic (β<3) i.e. the returns variation is wide. This might have put the investors in dilemma of whether to invest or not in gold or gold ETFs.

TABLE.4.18. PERFOMANCE OF ETF-MEASURE OF KURTOSIS (2010-2011)

VARIABLEEX. KURTOSIS

AXISGOLD 0.300IPGETF 0.607RELIGAREGO

0.832

HDFCMFGETF

0.835

QGOLDHALF 0.969KOTAKGOLD 1.121RELGOLD 1.203GOLDBEES 1.436SBIGET 1.537GOLDSHARE 1.554

60

In the year 2011 all ETFs except IDBIGOLD is lepto kurtic (β>3) i.e. their returns varied relatively in narrow range. Among them SBIGET was more trustworthy even though it gave less returns

TABLE.4.19. PERFOMANCE OF ETF-MEASURE OF KURTOSIS (2011-

2012)

VARIABLE

EX. KURTOSIS

IDBIGOLD

1.955

RELGOLD

4.731

AXISGOLD

4.867

RELIGAREGO

5.172

BSLGOLDETF

5.419

GOLDBEES

5.451

IPGETF 5.870HDFCMFGETF

6.045

KOTAKGOLD

6.148

GOLDSHARE

6.689

QGOLDHALF

6.974

SBIGET 7.309

VARIABLEEX. KURTOSIS

BSLGOLDETF

0.378

GOLDSHARE

0.794

HDFCMFGETF

0.889

AXISGOLD 0.960IDBIGOLD 1.016IPGETF 1.155MGOLD 1.457SBIGET 1.875RELIGAREGO

2.114

QGOLDHALF

2.167

RELGOLD 2.445GOLDBEES 2.851KOTAKGOLD

4.443

CRMFGETF 7.089

61

In the year 2012 returns of KOTAKGOLD and CRMFGETF were lepto kurtic and others were platy kurtic. Return profile of CRMGETF found extreme leptokurtic which added further its variability and riskiness of the investments.

TABLE.4.20. PERFOMANCE OF ETF-MEASURE OF KURTOSIS (2012-2013)

62

In 2013,the return distribution of only one fund found platykurtic .this statistical property of all other funds are just reverse of it and extremity in this regard was quite evident in most of the cases . so that year is also more risky for gold ETF investors of the country

TABLE.4.21.PERFOMANCE OF ETF DURING OVERALL PERIOD

VARIABLE

EX. KURTOSIS

BSLGOLDETF

2.104

CRMFGETF

4.422

SBIGET 5.221QGOLDHALF

5.864

IDBIGOLD

6.062

MGOLD 6.319IPGETF 7.497KOTAKGOLD

9.783

GOLDBEES

10.801

RELIGAREGO

11.442

AXISGOLD

11.521

GOLDSHARE

11.874

RELGOLD

12.280

HDFCMFGETF

17.305

VARIABLE

EX. KURTOSIS

BSLGOLDETF

5.3241

CRMFGETF

6.0392

IDBIGOLD

7.1756

QGOLDHALF

7.2607

SBIGET 7.5414

MGOLD 8.4234

KOTAKGOLD

8.4315

IPGETF 8.5774

GOLDBEES

8.7363

RELIGAREGO

8.9067

AXISGOLD

9.2081

RELGOLD

9.8826

GOLDSHARE

10.204

HDFCMFGETF

12.988

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As the overall period is considered, the returns of all ETFS were lepto kurtic. So the variations in their returns were thinly separated. Such a thin spread is not much surprising as the study has used prices data.

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RISK -RETURN COMPARATIVE ANALYSIS

COMPARISON OF ETFS IN TERMS OF RISK RETURN PERFOMANCE

TABLE.4.22.COMPARISON OF ETFS IN TERMS OF OVERALL CO-EFFICIENT OF VARIATION

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The result of risk return composite analysis which have been reported in table4.22.showsthatQGOLDHALF,KOTAKGOLD,RELIGAREGO,GOLDBEES,RELGOLDdelivered better return per unit of risk assumed by the ETF investors in the country. In this regard the relative efficiency of ETF like IDBIGOLD and MGOLD in producing return at par with the level of risk assumed by the investors found weak. The performance of CRMFGETF, the maximum return delivering ETF among the group is also found not outstanding in this respect.

VARIABLE RETURN-RISK RATIO

IDBIGOLD 0.010MGOLD 0.019CRMFGETF 0.025GOLDSHARE 0.039IPGETF 0.052AXISGOLD 0.052GOLDSHARE 0.058HDFCMFGETF 0.059SBIGET 0.059RELGOLD 0.060GOLDBEES 0.061RELIGAREGO 0.062KOTAKGOLD 0.065QGOLDHALF 0.069

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COMPARISON OF GOLD EXCHANGE TRADED

FUNDS AND PHYSICAL GOLD PERFOMANCE

COMPARISON OF ETFS & GOLD IN TERMS OF OVERALL RETURN

COMPARISON OF ETFS & GOLD IN TERMS OF OVERALL VOLATILITY

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TABLE.4.23.COMPARISON OF ETFS & GOLD IN TERMS OF OVERALL RETURN

VARIABLE MEAN ETF-GOLD

RANKETF GOLD

CRMFGETF 0.040 -0.087 0.127 1

MGOLD 0.019 -0.065 0.084 2

IDBIGOLD 0.010 -0.068 0.078 3

GOLDSHARE

0.050 -0.028 0.077 4

AXISGOLD 0.053 -0.008 0.061 5

HDFCMFGETF

0.060 0.006 0.054 6

IPGETF 0.057 0.004 0.053 7

QGOLDHALF

0.067 0.016 0.051 8

RELIGAREGO

0.066 0.015 0.050 9

KOTAKGOLD

0.065 0.016 0.049 10

GOLDBEES 0.061 0.016 0.045 11

RELGOLD 0.060 0.016 0.045 12

SBIGET 0.059 0.016 0.043 13

GOLDSHARE

0.055 0.016 0.040 14

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The comparison between return performance of gold ETFs with the price movement of the yellow metal, gold, in the spot market shed light on the operational efficiency of gold ETFs in producing the extra returns to the investors. All the 14 funds selected for the study out beat gold in terms of return performance. Excess return over return from gold spot market clearly indicates the asset management efficiency of ETF companies in India is significantly high. Therefore they can make superior return through wise market diversification strategies.

TABLE.4.24.COMPARISON OF ETFS & GOLD IN TERMS OF OVERALL VOLATILITY

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While

comparing volatility of gold ETF prices with gold spot market prices, it is quite obvious that gold ETF investments are less risky for investors. Only CRMFGETF is investors is an exception to this which is more due to the period of its transaction. It is one the funds which introduced only two year back when the prices of gold market become more volatile than before.

The superior performance o gold ETF with gold investment in the country substantiate that this financial innovation

VARIABLE STD. DEV. ETF-GOLD

RANKETF GOLD

GOLDSHARE

0.948 1.194 -

0.246 1

AXISGOLD 1.006 1.243 -

0.237 2QGOLDHALF

0.972 1.194 -

0.221 3

MGOLD 1.007 1.228 -

0.220 4

IDBIGOLD 1.021 1.233 -

0.212 5KOTAKGOLD

0.995 1.194 -

0.199 6HDFCMFGETF

1.026 1.224 -

0.198 7

GOLDBEES 0.996 1.194 -

0.197 8

SBIGET 0.998 1.194 -

0.196 9

RELGOLD 1.003 1.194 -

0.191 10

IPGETF 1.094 1.230 -

0.136 11RELIGAREGO

1.060 1.194 -

0.134 12GOLDSHARE

1.272 1.303 -

0.031 13

CRMFGETF 1.619 1.264 0.355 14

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satisfies all categories of investors-risk averter, risk lover and risk neutral alike.

FINDINGS OF THE STUDY

In the year 2010 HDFCMFGETF gives highest return for investment. ETFs RELIGAREGO, IPGETF, KOTAKGOLD, GOLDSHARE, and GOLDBEES also give impressive return. But AXISGOLD gives less return compared to others

In the year 2011, QGOLDHALF hold rank first in terms of returns. Other ETFs except IDBIGOLD gives almost same rate of return.

In the year 2012 CRMFGETF delivered more returns than all other ETFs that given by in the group. This happened during the inception year of the fund itself. Almost all other funds showed similar performance of returns during that year.

In the year 2013 was not promising for gold ETF investors in India. Only four funds; IDBIGOLD, BSLGOLDETF & GOLDBEES & CRMFGETF generated positive return which is in fact marginal only. CRMFGETF which was ranked first in the previous year made positive return even if it was much less compared to that year.

Maximum rate of growth on daily basis (8.491) was made by CRMFGETF during the four year study period of 2010-2014.Almost same rate of decline in the asset return happened to almost all funds in the growth. The rate of decline is comparatively less in SBIGET

When we consider all the period together QHALFGOLD proved to be most profitable investment schemes to ETF

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investment in India. RELIGAREGO & KOTAKGOLD also have delivered return at that scale. MGOLD & IDBIGOLD found least performing asset during the period

In the year 2010 returns of AXISGOLD is less volatile (even if it gives medium returns) compared other ETFs. So it is more dependable for an investor. During the year RELIGAREGO was the most volatile ETF

Compared to 2010, more return volatility was visible in 2011. In that year IDBIGOLD has produced consistent results for the investment.BSLGOLDETF is the most volatile ETF during the year.

In the year 2012 the rank of GOLDSHARE in terms of consistency is 1. Even though CRMFGETF gives high return from the day of its origin, its asset returns are highly volatile. GOLDSHARE maintained previous position in terms of risk performance.

The pattern of volatility shown by gold ETF in India during the year 2013 was akin to that of in 2012.But GOLDSHARE was able to maintain its position as in previous year of 2012. This year also CRMFGETF showed more volatility in its performance

In the overall period comparison GOLDSHARE has maintained more stability in producing return. QHALFGOLD & KOTAKGOLD are also less volatile compared to other funds. So these funds are more beloved to risk averters. CRMFGETF was the most risky investment scheme to investors in India.

In the year 2010, the return distributions of majority of ETFs are negatively skewed, i.e. number of increases in their return is greater than their decreases. The return

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profile of only 4 ETFs (RELGOLD, SBIGET, HDFCMFGETF, AXISGOLD are positively skewed. i.e. the number of their increases is less compared to decreases. The return of RELIGAREGO was found almost normal during the year.

In the year 2011, all ETFs except SBIGET were negatively skewed. During the year strong bullish movement is quite evident in Indian ETF market.

The year 2012 found less fortunate to the investors because most of the ETFs were positively skewed. CRMFGETF was issued for the first time during the period of that year; naturally its skewnes was high when compared to others. More decreases in asset prices were handicapped during that year, which might be due to the revival of the investor confidence with the performance of financial market across the world.

In 2013, the increases outnumber the declines significantly .hence again skewnes co-efficient found negative in respect of all the schemes under the study. while comparing table 4.15 with table 4.14we can say that the decreases was larger in magnitude on account of which the average return became marginal

As an aggregate of 4 years are considered, returns of most of the ETFs showed large number of increases in their returns, but SBIGET&CRMFGETF showed the positive skewnes. So the two companies could make larger increases than that made by other companies in the group.

In the year 2010 returns from all the ETFs were platy kurtic (β<3) i.e. the returns variation is wide. This might have put the investors in dilemma of whether to invest or not in gold or gold ETFs.

In the year 2011 all ETFs except IDBIGOLD is lepto kurtic (β>3) i.e. their returns varied relatively in narrow range.

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Among them SBIGET was more trustworthy even though it gave less returns

In the year 2012 returns of KOTAKGOLD and CRMFGETF were lepto kurtic and others were platy kurtic. Return profile of CRMGETF found extreme leptokurtic which added further its variability and riskiness of the investments.

In 2013,the return distribution of only one fund found platykurtic .this statistical property of all other funds are just reverse of it and extremity in this regard was quite evident in most of the cases . so that year is also more risky for gold ETF investors of the country

As the overall period is considered, the returns of all ETFS were lepto kurtic. So the variations in their returns were thinly separated. Such a thin spread is not much surprising as the study has used prices data.

The result of risk return composite analysis which have been reported in table4.22.showsthatQGOLDHALF,KOTAKGOLD,RELIGAREGO,GOLDBEES,RELGOLDdelivered better return per unit of risk assumed by the ETF investors in the country. In this regard the relative efficiency of ETF like IDBIGOLD and MGOLD in producing return at par with the level of risk assumed by the investors found weak. The performance of CRMFGETF, the maximum return delivering ETF among the group is also found not outstanding in this respect.

The comparison between return performance of gold ETFs with the price movement of the yellow metal, gold, in the spot market shed light on the operational efficiency of gold ETFs in producing the extra returns to the investors. All the 14 funds selected for the study out beat gold in terms of return performance. Excess return over return

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from gold spot market clearly indicates the asset management efficiency of ETF companies in India is significantly high. Therefore they can make superior return through wise market diversification strategies.

While comparing volatility of gold ETF prices with gold spot market prices, it is quite obvious that gold ETF investments are less risky for investors. Only CRMFGETF is investors is an exception to this which is more due to the period of its transaction. It is one the funds which introduced only two year back when the prices of gold market become more volatile than before.

SUGGESTIONS OF STUDY

The investor awareness programmes should be conducted by organizations concerned to build awareness among investors. The Association of Mutual Fund in India (AMFI) has initiated a programme under which each fund house needs to organize at least five investor awareness programmes every month.

The RBI should consider the unit of Gold ETF as a pledge, so the investors can avail loans from the banks. Gold ETFs turn out to be a safe investment option for investors to hedge their assets against the uncertain global market scenario.

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Risk is unavoidable by an investor. Risk is unpredictable. But still some measures can be undertaken. Risk will be predicted by using risk metrics like standard deviation which is often practiced by investors. So, the investors must watch carefully the ongoing trade and volume to minimize risk.

Measures should be taken to widen the scope of gold ETFs for the welfare safety and gain of the investors

Introduce and popularize ETFs in other metals too like silver, platinum etc. in order to develop ETF market in India

CONCLUSION

Gold ETFs offer investors a convenient way and means of investing in gold as aSecurity 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. From this study a lot of facts were discovered that almost all the gold ETFs demonstrate an incredible performance in the ETF market and were giving more returns than the physical gold. This study successfully proved that gold ETFs are more profitable, less volatile, negatively skewed and narrowly varied

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in nature that give maximum promotion to the investors than physical gold

BIBLIOGRAPHY

Book Reference Securities Analysis and portfolio management (sixth

edition) (2002) Donald.E.F.Fischer and Ronald.J.Jordan, prenticehall of India private limited

Investment analysis and portfolio management (2002) Prasanna Chandra, Tata McGraw-Hill publishing company limited

Fundamentals’ of investment (2012), Dr.Inderpal Singh, kalyani publishers

Portfolio management, (1strevised edition) ,(2008) Samir.K.Barua, V.Ragunathan, Jayanth.R.Verma, Tata McGraw-Hill publishing company limited

Security Analysis and Portfolio Management (2001) ,Punithavathy Pandian,Vikas Publishing House Pvt Ltd

Investment Management, V.A. Avadhani

Investment Management ,V.K .Bhalla

Investment Analysis & Portfolio Management, Dr. Kevin

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Indian Banking, K.C Sekhar

Website reference www.nseindia.com www.rbiindia.com www.moneycontrol.com www.wikipedia.com www.reserachmethodologies.com www.universalwealthcreation.com www.inversebooks.com www.forbes.com www.financialexpress.com www.investmenteconomics.com

THANK YOU……………