Indian retail investors can now trade intraday in gold through Gold Exchange Traded Funds! One unit of the fund may be as low as Rs.10. The Budget Proposal to start Gold ETF in India aims at enabling retail investors to buy or sell gold in smaller amounts of even Rs. 100. Gold ETF will offer an excellent investment option for an investor to hedge against inflation and to diversify his portfolio. The retail investor can now reduce the burden on his budget by buying small quantities over a period instead of a bulk purchase just before important events. The article aims at analyzing the pros and cons of the Gold ETF in India and its viability as an investment option.

On February 28, 2005 all eyes and ears were on the Budget Presentation by the Indian Finance Minister, P Chidambaram. A lot of excitement and furore was created by his announcements on Fringe Benefits Tax and Cash Withdrawal Tax. However, there was also a very novel proposal put forward by Chidambaram - that it was time for Indian Mutual Fund houses to come up with Gold Exchange Traded Funds (GETF). This, he believed, would enable a retail investor to trade in Gold in smaller lots of even Rs.100.

The proposal was warmly welcomed by the Mutual Fund Managers and analysts. There was much talk about its advantages and scope in India, especially as India is the world's largest consumer of gold. According to the World Gold Council, Indian individuals hold at least 15,000 tons of Gold (7% of global stocks) and buy about Rs.40,000 cr worth of gold jewelry and investments every year.

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