Why do Gold ETFs have different prices?
There are several gold ETFs in India, and genrally 1 unit of every gold ETF represents 1 gram of gold. If that’s the case then why does the price of these gold ETFs differ?
Shouldn’t they be the equal?
No, they shouldn’t.
The reasons why prices between various gold ETFs vary:
1) Active trading
An ETF trades in the stock exchange and there is a different price at every tick the price of the ETF can be different from its NAV.
2)Expenses
All ETFs have expenses that are paid out by selling gold holdings or using the income from their debt holdings, so although theoretically one unit of a gold ETF represents a gram of gold – in reality the gold holdings are slightly lower due to the expenses. The higher the expenses, the lower would be the NAV, and consequently the trading price of the ETF.
Higher expenses means less lower returns for you, and a fund with lower expenses is better for you.
So, expenses eat into the NAV of the various ETFs, and affect their prices.
3)Composition of assets
Gold ETFs not only hold gold bars, but also debt instruments and cash for some liquidity, so that makes a difference to the NAVs of the different ETFs. I don’t know how much of a difference this factor makes, but I’d think this factor plays a larger role than active trading, but a smaller role than the expenses that are paid out.
Conclusion
These three factors contribute to the variation in the prices of the different ETFs, and if you are looking for a cheaper gold ETF then you should compare the expenses that different fund houses charge instead of the price at which they tra