The main objective behind CRISIL Gold Index is to provide an independent and relevant benchmark for performance evaluation of investment products with gold as underlying investment.
Gold has gained its importance in the wake of global financial crisis which happened in 2008. Since then, gold has been consistently outperforming the equity market and other financial investment assets.
Between the period of August 2008 and July 2011, gold has given an annualized return of 22.91% compared to 9.3% by S&P CNX Nifty.
The strong performance by gold has also coincided with the introduction of Gold Exchange Traded Funds (Gold ETFs) and Gold Fund of Funds (Gold FoFs) in India. The objective of these funds is to provide returns that closely correspond to the returns delivered by gold as an asset class.
The first Gold ETF in the country was launched in March 2007, the product has gained momentum only over the past two years. The average assets under management (AUM) under this category have grown exponentially from Rs. 0.96 billion in March 2007 to Rs. 60 billion as on June 2011.
Currently 11 asset management companies offer 11 Gold ETFs and three Gold FoFs in India.
Gold ETFs in India benchmark their performance to the price of gold on the domestic commodity exchanges or the local bullion market. However, use of different sources for performance comparison results in inconsistency and makes it difficult for investors to compare one ETF with the other.
CRISIL aims to provide consistent benchmark index that can be used for performance comparison.
“Gold is considered to be one of the safest havens for investments. Typically, during uncertain times, gold acts as an effective hedge." Mukesh Agarwal, Senior Director – CRISIL Research said in company press release.
Agarwal further said, “When compared with holding physical gold, gold ETFs provide investors with various benefits like affordability, guaranteed purity, high liquidity, transparent pricing and low holding cost. These benefits along with the tax advantage make gold ETFs a more efficient way of owning gold."
The CRISIL Gold index has a base date of 02 January, 2007 and is based on the landed price of 10 grams of gold in Mumbai.