Gold ETF Investment – Meaning, Reasons to invest, Compatibility, Important Points, Tips & more

Know everything about Gold ETF Investment here.

Gold ETF is available in the stock exchange of India, both – National Stock Exchange of India and the Bombay Stock Exchange of India.

These ETFs are listed and traded on both the stock exchanges, just like trading of shares and stocks of any other company.

This means that you can buy and sell gold ETFs through stock exchanges. Let us take a detailed look at how Gold ETF investments work.


What is the ETF?

ETF or Exchange Trade Fund refers to an investment fund that we trade, buy or sell throughout the day on a stock exchange.

They potentially combine the features of stocks, commodities, bonds, or mutual funds. An ETF is known as an Exchange Traded Fund because we trade it on an exchange just like stocks.

Benchmark Asset Management Company Private ltd proposed to the Securities Exchange Board of India in 2002 to introduce the concept of gold ETF in India.

While owning gold in physical forms like jewelry, gold coins, biscuits or bars requires a great cost, owning it in paper forms like gold exchange-traded funds or gold ETFs comes at a price approximate to the real price of gold.


Why should you consider Investing in Gold ETF?

Like any other investment option, you would think twice before, regarding should you invest in Gold ETFs or not.

Here are some advantages on the go, that would clear your doubts regarding the same.

  • Unlike physical gold, in gold ETFs, there are no making charges, storage problems, jeweler margin, etc., and hence, they are cost-effective and highly economical.
  • Gold ETFs are trustworthy and transparent because of their direct gold pricing. Real-time gold supported ETF prices are present on the Stock Exchange.
  • Gold ETFs are a tax and cost-effective way to invest as the income earned on the units of gold supported ETFs is considered as long term capital gain.
  • The purity of the gold is guaranteed, and each unit is supported by the physical gold of 99.5% purity.
  • It is easy to purchase and sell Gold ETFs. Also, it is convenient as the transaction takes place through the customer’s Demat account, which ensures safety as well as cost savings.
  • Gold-backed ETFs are also acceptable as a guarantee for loans.
  • You can purchase Gold ETFs as low as one unit, which is 1 gram.

Know in Detail about Various Types of Gold Investment here

Digital Gold InvestmentGold Coins Investment
Gold Bars InvestmentSovereign Gold Bond Investment
Gold Jewelry InvestmentGold Funds Investment
Gold Monetization Scheme Investment

Are Gold ETFs for You?

According to experts, Gold Exchange Traded Funds are the best investment options for the investors who wish to invest in gold but do not want to invest in physical gold because of the storage troubles or doubt about the purity of gold and are looking to get tax benefits simultaneously.

Also, financiers who are looking to lock their resources for at least 3 to 5 years, should think about investing in Gold Exchange Traded Funds.

Also, investors who do not wish to invest a lump-sum amount can invest in Gold ETFs as it allows them to buy as little as 1 unit which is equivalent to 1 gm of pure gold.


Points to consider before Gold ETF Investment

We should keep certain things in mind before investing in Gold ETFs that are listed below:

Gold ETF InvestmentWhichever gold exchange-traded fund you choose for investing in Gold Exchange Traded Funds, make sure it is profitable.

To ensure this, check the performance and past results of the fund house. Check the history of the fund house as a minimum of the past 3 years.

Gold ETFs must be preferred based on their transaction activities. Most of the funds listed on the NSE and BSE trade mostly based on the changes in their standard, denoting their liquidity.

Remember, the higher the transaction activity, the higher will be the liquidness, and the lower will be the impact costs.

If the trading activity is too low, in the future, this may lead to losses as you will need to sell your gold ETFs at a lower price than your purchase price.

So, cross-check and find out all information related to the gold ETFs. Always check the AUM of any company.

AUM or Asset Under Management refers to the market price of assets that the company manages for its stockholders.

The more the AUM, the more will be the reliability and reliance of the customers on the company.

Select a gold exchange-traded fund only after going through all its policies and procedures, rules and regulations, and charges and expenses.

Many companies have hidden charges which consequently, increase’s the profits, the costs and expenses. Go for a company which charges fewer costs and expenses.


Find more details about Gold Investment here

Learn about Gold InvestmentGold vs Other Asset Classes
History of GoldFeatures of Gold
Gold Rate TodayGold Rate Forecast
Gold Investment CalculatorGold Rate Calculator
Gold Investment ComparisonGold Rate Comparison

Tips on Buying Gold Exchange Traded Fund

Gold ETFs range from a price of Rs.5,000 to Rs.20,000. Choose the ETF which best aligns with your investment plan, financial goal, and financial capacity.

There are two types of Gold ETFs plans available in India. First is the dividend option, in which you will be getting dividends when the price of gold increases. In this case, you will also need to pay the dividend distribution tax.

The second option is the growth option. In the growth option, you do not get the dividend, and hence, no dividend distribution tax. Here, tax for long term capital gain is applicable.

A Gold ETFs NAV or Net Asset Value plays an important role. It represents the market price of gold at a particular given time.

It is Gold ETFs per-share value. But many of the funds do not denote properly and hence, tracking error arises.

Tracking error depends on the variations of Gold ETF as compared to the market price of the product. If the errors are more, then the variations will also be similar to the market price.

We suggest that investors properly check the tracking error and invest in the Gold ETF with minimum tracking error.


Investment in Gold ETFs

To invest in Gold ETFs, an individual must have a Demat account. In case, you do not have a Demat account, no worries, it is easy to open a Demat account.

The following documents are required to open a Demat account – PAN Card, Address Validation, and Identity Proof.

After opening your account, you can select which Gold ETF you want to finance in. There are many gold ETF funds to invest in India, for instance, SBI Gold ETF, HDFC Gold Exchange Traded Fund, Invesco India Gold Exchange Traded Fund, Canara Robeco Gold Exchange Traded Fund, etc.

Compare all the options and keep in mind the important points mentioned above before placing the order.

After you place an order, you will receive an approval message on your registered mobile number or email id. And this is how you have easily and successfully placed your order for Gold ETF.

You should note that a brokerage fee and fund management charges are also levied when you buy and sell the gold ETF units.


Conclusion – Gold ETF Investment

Investing in Gold Exchange Traded Funds is advantageous and beneficial, for both investment and financial purposes. It will help an investor in making his portfolio strong.

However, we should calculate and confirm the risks and their probability before investing.

Also, we should take aid from financial experts, so that your financial goals and financial capabilities are in alignment.


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