Gold ETFs: Features, Benefits and More

Indians have had a great attraction to gold for generations. India’s first gold exchange-traded fund (ETF) was created in 2007. (Gold BeES). These ETFs have gold as their underlying asset. Gold ETFs also provide you access to the Indian gold market.

What is Gold ETF or Gold Exchange Trade Fund?

Gold ETFs, or Gold Exchange Trade Funds, are open-ended mutual fund schemes based on the ever-changing price of gold. Physical gold, on the other hand, does not yield a profit. Furthermore, the costs of producing real gold are substantial. Gold ETFs allow investors to participate in the gold market. They are a fantastic long-term investment option for investors wishing to fight inflation.

Furthermore, as compared to equities, gold is a less volatile asset. 1 gram of gold is equal to 1 Gold ETF unit. As a result, you get the best of both worlds: stock trading and gold investments. Because some fund firms profit from gold bullion, they must maintain a constant eye on market performance. Gold ETFs’ value rises and falls in lockstep with the price of actual gold. They not only don’t compromise on purity, but they also guarantee consistent supply across the country.

Who should invest in Gold Exchange Trade Funds (ETFs)?

Gold ETFs are appropriate for individuals who want to diversify their portfolio by including gold exposure. It’s a low-risk investment that’ll appeal to cautious investors. The funds will be used to purchase standard gold bullion with a purity of 99.5 per cent. Even when traded on stock exchanges, gold ETFs are a low-risk investment. Individuals who do not want to pay for storage and additional taxes associated with actual gold can invest in gold ETFs.

Features of Gold ETFs

• Gold ETFs can be purchased and deposited in your Demat account via the internet. Trading them on a stock exchange is the responsibility of the asset management firm (AMC). You can enter and exit whenever you choose. Gold ETFs function exactly like physical gold, even in the Demat format.
• Gold ETFs have a high level of liquidity since they can be traded on the stock exchange at the current price during a trading session. Furthermore, transaction costs (broker fee and government charge) are lower than for real gold.
• To purchase gold from a retailer, you’ll need a substantial sum of money. However, with gold ETFs, you have the option to choose the amount you want to buy and sell.

Benefits of Gold ETFs

• Investors can gain exposure to the gold market through gold ETFs, which provide a transparent, profitable, and secure platform. They also have a lot of liquidity because gold can be traded rapidly and without any fuss.
• Gold ETFs, unlike real gold, are not subject to a wealth tax. Storage (in a Demat account) and security are also not concerns. As a result, you can keep your ETFs for as long as you like.
• Because the returns created by Gold ETFs are subject to long-term capital gains tax, they provide a tax-efficient way to store gold. However, no additional sales tax, VAT, or wealth tax will be imposed.
• Investors in gold ETFs can use the National Stock Exchange (NSE) to keep their transactions and trades transparent.
• You can use it as collateral for secured loans in addition to listing and trading on the stock exchange. With no entry and exit load, transactions are faster and more fluid.
• Physical gold in the shape of ornaments or bars attracts making charges, while golf ETFs do not. It is available for purchase at international pricing. As a result, there will be no mark-up.
• A gold ETF’s NAV, or Net Asset Value, can rise or fall in line with market trends, just like any other equities fund. Similarly, additional costs such as the fund manager’s fee and others might have an impact on the returns.

How does Gold ETFs work?

Physical gold serves as back-end security for Gold ETFs. When you buy a Gold ETF, for example, the person or business on the back end is buying gold. They also provide investors with assurances concerning the quality of gold.

For example, the Gold BeES, which is listed on the NSE (National Stock Exchange), closely monitors the current market price of gold, known as spot pricing. The National Stock Exchange (NSE) authorises an ‘Authorised Participant or Member,’ usually a significant company or firm, to handle the buy and selling of gold to create ETFs. The cost of gold and ETFs remains constant due to constant trading and regulation by the ‘Authorised Members.’

How to Invest in Gold ETFs?

1. By submitting your PAN, ID evidence, and proof of residency, you can open a Demat account and a trading account online.

2. Choose a Gold ETF and place an order. There’s also the option of investing in mutual funds that have a gold ETF as an underlying asset.

3. You will receive an email and a phone call confirming your order.

4. During the transaction, a small brokerage fee will be deducted.