MF-Query Board

Given the fact that inflation is on the rise across the world and the Ukraine-Russia conflict is dragging on, does it makes sense to invest in gold exchange-traded funds?
- Pratik Seth 

• Protection against Inflation Gold has been used as hedging security and may be used to hedge against currency changes and inflation. It is therefore considered a safe investment.

 Simple and Open Trading You must acquire a minimum of 1 unit of gold to begin trading in gold ETFs, which is equivalent to 1 gram of gold. Gold ETF units can be bought and sold in the same way as stocks can, through your stockbroker or an ETF fund manager. Till the markets are open, you may buy and sell gold ETFs at any time of the day. Changes in gold prices caused by VAT or other taxes in various regions of the world will have no effect on you. Also, investors don’t have to wait to sell gold ETFs because they have no lock-in period.

• Used as Collateral Your investment in gold ETFs can help you borrow money as a secured loan from a financial institution, wherein your ETFs units can be used as collateral. The whole process is less time-consuming and fairly simple.

• Cost-Effective Gold ETFs bear no entry and exit loads for the purchase or sale of units in gold ETFs listed on the stock exchange. Brokerage fees are only about 0.5 to 1 per cent of the total. Some brokers even offer lesser fees nowadays. In addition, they are less expensive than real gold investments and allow an investor to buy as little as one unit of gold.

• Tax Benefits Long-Term Capital Gains Tax applies to gold ETFs that have been held for more than a year. Gold ETFs, on the other hand, are exempt from VAT, Wealth Tax and Securities Transaction Tax.

• Secure and Safe Investment Physical gold as an investment is more difficult since there are concerns about theft, secure storage or payments such as a locker or making costs. The price of gold does not normally change a lot. Even if your stock returns decline, gold ETFs may protect you from significant losses. 

• Portfolio Diversification: ETFs that invest in gold help diversify your portfolio. In the face of volatile market conditions, a diversified portfolio can help you earn greater returns while lowering your risks. For investors who wish to keep track of gold prices and have better diversification while being protected from inflation, gold ETFs offer a pretty good option. 

How are mutual funds’ net asset value (NAV) calculated on a holiday?
- Gayatri Pilani 

On days when the stock markets are open, the NAV of equities or equity-oriented mutual funds is determined. After the market closes, NAVs are calculated using the closing prices of the securities in the portfolio. As a result, equity-oriented mutual funds lose money on Saturdays and Sundays. Debt or liquid mutual funds, on the other hand, earn returns even on weekends because they invest primarily in fixed income assets such as bonds, commercial papers (CP), and certificate of deposits (CDs), debentures and government securities with varying maturity profiles. These assets generate interest every day and earn returns even if the stock markets are closed or NAVs are not calculated. 

As a result, the appreciation of Saturday, Sunday or holidays will be reflected in the next day’s NAV. On holidays and non-business days, such as Sunday, liquid funds publish their NAVs. Liquid fund investments made before the cut-off time on Friday will have their NAV declared the following Sunday if Monday is a business day. This is because, according to the regulations of the Securities and Exchange Board of India (SEBI), if an investment in a liquid fund is completed before the cut-off time on a day preceding a market holiday, the applicable NAV will be that of the next business day.