Benchmark's Gold BeES to ease investing in yellow metal

There are more sophisticated ways to invest in gold than buying gold biscuits or jewellery. Gold BeES is hitting the stands today.

Benchmark Mutual Fund has launched the Gold BeES, so if you are bullish on gold and want to buy it as a financial product and yet not worry about physically owning it, this may be the product you should be looking at. (View - New Fund Offers open NOW)

Sanjiv Shah, Executive Director of Benchmark Asset Management, says that he is trying to allow people to invest in gold through the Mutual Fund route.

Anybody who comes into the market faces problems which include gold quality issues and the fact that they have to pay 5-10% more than what the international prices, as well as wealth tax. His company is trying to eliminate these hassles.

Excerpts from CNBC - TV18’s exclusive interview with Sanjiv Shah:

Q: Explain the product - how does it work? Could you draw some parallels with other countries which have had similar gold products?

A: Basically what we are trying to do here is allow people to invest in gold through the mutual fund route. The whole idea being that anybody who comes into the market, the biggest problem he has when he wants to buy gold is that he is not sure when he goes to a jeweller or a bank about what kind of quality he is getting in.

Secondly, he is paying typically between 5-10% higher than what the international prices are. He pays wealth tax every time he actually holds gold, he has to worry about insurance. We are trying to eliminate all of these problems by allowing each individual to actually buy gold through the mutual fund route and trade it on the exchange, so any individual who buys our Gold BeES will be able to buy gold, one unit is equivalent to approximately a gram of gold. So you want to buy gold for one gram of gold just go to the exchange and just buy one gram of gold. That is the basic idea.

About the international experience, we were the first to conceive this whole idea of a Gold ETF. It was in 2002 and since then it has been a very successful product. It has been launched in Australia, NYC, on the London Stock Exchange, in Istanbul and South Africa. Totally about USD 13 billion worth of assets are now in the Gold ETFs across the world.

We believe that Indians are the largest consumers of gold, with 800 tonnes of gold consumed which is basically about 25% of the total gold mined every year. We wanted to actually give a transparent tax efficient vehicle and a very low cost vehicle for individual investors wherein they don’t have to worry about the quality and they basically pay international prices.

Q: There is quite a liquid commodity market here as well. How does your product compare with just buying gold futures on the commodity exchange?

A: They are again both different things, it is like either you buy Nifty BeEs or Nifty futures. It is exactly like in futures you buy Reliance futures or Tisco futures, which as against buying Tata Steel or Reliance stock, hold it for a long period of time. Typically people do hold gold for a long period of time.

It is different from basically speculating or trading which you would do in gold futures market, so if you are buying gold for 6 months – 1 year possibly go to the futures market, but if you are buying gold for a longer period of time this is the product for you.

Q: You must have tracked the market as well, how do you gauge where prices are at this point and what kind of potential upside anyone who takes part in this might get?

A: We don’t believe that people should track gold prices on a daily basis, the fact is that Indians consume about 800 tonnes of gold. They buy it because in India there is a social compulsion, the whole idea of gold being a store of wealth. If somebody is buying gold because the dollar prices are at about USD 650 an ounce today and is going to go at USD 660 an ounce, to be honest with you we are not encouraging that kind of investment.

What we are encouraging is that you are going to invest in gold anyway ,in a physical gold. You come to this product, it makes sense for you for the next 10-15-20 years you don’t pay wealth tax, long term capital gains also is very beneficial to you.

Our whole idea is that don’t worry about where gold prices are. To answer your specific question are the gold prices very high or low, in the last four years they have moved from USD 250 an ounce to nearly about USD 650 an ounce today. Will they go up? You have theories on both sides but most of the analysts have started talking about the fact in 2007 and that is what we have researched out everywhere, is that gold prices should be anywhere between USD 700-USD 725 an ounce.

Q: What kind of trading lots would you work with in terms of an application amount?

A: On the NFO, people have to put in Rs 10,000 but when it gets listed one unit of ours will basically be equivalent to one gram of gold so approximately about 950 bucks today. So anybody can keep buying one one gram of gold on a daily basis but on the NFO period people can put in a minimum of Rs 10,000.

Q: Just to come back to the futures comparison, how do the costs of this stack up against the futures trading costs?

A: The trading costs will be quite similar because most of the exchanges have similar costs of trading and in terms of holding when you buy futures and you take delivery of gold you have pay insurance cost, you have to pay holding cost, either it is an warehouse receipt or you are personally holding physical gold.

We have a wealth tax on that but if you are holding our units the trading price remain more or less similar but the minute it hits your demat account there are no insurance costs, no costs wealth tax and we will charge about 100 bps on a annualized basis that is the cost for everything holding gold, insurance etc, the total costs for the investor is about 100 bps. As compared to if you are holding gold yourself the costs varies anything between 100-200 bps.

Q: How are profits on sale on these units taxed?

A: They will be taxed as a non-equity mutual fund, which is very similar to a debt MF so long-term will happen after one-year, so if one sells after one-year you get taxed as long-term capital gains tax.

Q: Just to digress from gold for a bit you have a very active banking BeES as well, what have you been doing with it these past few days?

A: Just sitting back and seeing what happening with the market nothing of any consequence.

Q: Has there been any redemption because of interest rate fear?

A: No.

Q: You also run arbitrage funds, how has it been in the last few days as futures keep drifting in and out of big cost of carries?

A: Very good, we believe that this is the right time for investors to get into this fund. The last two months have been very good for us and we have been returning almost close to about 9-10%, which is nearly 200 bps over the money market rates and given the fact that money market rates are moving up, we believe slowly and the volatility in the market, we have been getting lot of opportunities to get in and get out, so returns to investors are getting much better.

But I need to qualify that because if the trend of volatility continues maybe when the open positions come down a bit those opportunities vanish. You may make money at that point in time but over a period of time it comes down but as it stands today, the last two months have been very good.

Q: Typically how much would you is delivering in a month like February?

A: Between 9-10%.

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