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Gold Exchange Traded Funds (Gold ETFs); The Future of Gold Investments.

Gold

Love for gold is rooted in the Indian tradition. Whether it’s earrings, rings, necklace, or anything else, Indians love gold. And hence, it can be found in every other household in India. No bride, however poor, leaves her paternal home without at least a trinket of gold.

But this precious metal is not always found in the form of jewelry. Indians often buy gold as an avenue of Investment. Nonetheless, keeping the current scenario in mind, Gold has reached it’s all-time high and trades around Rs.50000.

Moreover, after Demonetization, Indians are now inclined towards digital transactions than a physical transaction of Cash. The same wave can be seen in GOLD as well. People do not prefer Physical possession of Gold.

Well, what if I tell you there is an Option to Invest in Gold without any need to possess it physically. YES, it is possible via Gold ETFs. Let us dig deep into the topic and I assure you that, you will get to know every important point about Gold ETFs by the end of the blog.

What exactly are Gold ETFs?

Gold ETF

Gold ETFs are commodity-based mutual Funds that Invest in assets like Gold. These exchange-traded funds perform like individual stocks and are traded similarly on the stock exchange.

An Investor invests in Gold bullions/Gold Units instead of actual Gold. The Fund manager or an Investor may buy and sell ETFs during the exchange trading hours on a real-time basis, and once traded, they are credited in the form of Gold bullions or Units in the Demat accounts and not in form of actual Gold. One unit of gold ETF is equal to one gram of gold at the price that you bought it in.

Benefits of Gold ETFs.

gold vs etf

Tax Benefits: In the case of the Gold ETFs, you do not have to pay VAT, Wealth Tax or Securities Transaction Tax, etc. However, gold exchange-traded funds do attract long term capital gain tax.

No worries about storage & safety: Gold ETFs are traded in digital form through the Demat A/C. As such,  nvestors do not have to worry about Gold getting stolen.

Elimination of Risks of Impure Gold: There are chances jeweler might cheat you with the purity of the Gold. Gold ETFs consider Internationally acceptable hallmarked Gold and are regulated.

Cost-effective: Investors can purchase Gold units as per their Capacity. If you are investing in a gold ETF that is listed on the stock exchange, there is no entry or exit load. Brokerage charges are very low.

Transparency: Just as stocks and shares, gold prices on the stock exchange are also available publicly. You could know the value of your portfolio by searching the prices of gold for that day or hour.

Easy to Trade: A minimum lot that will be required to buy to begin trading in ETFs is 1 unit. i.e., 1 gram of gold. You can buy and sell the units through your stockbroker or ETF fund manager or trading apps on a daily or hourly basis, just like equities.

Similar Price: As Gold ETFs are traded on the exchange, irrespective of the location prices are the same. In case of Physical Gold, prices differ from city to city and jeweler to jeweler.

Less market risk and high liquidity: Variations in gold prices are generally not as high as inequities. On the Exchange, you can easily find a buyer and liquidate your holdings if required.

Why should Gold ETFs or Gold be a part of your Portfolio?

gold portfolio

Portfolio diversification across the asset classes helps in long term wealth creation. Moreover, Gold generally tends to have a negative correlation with the stock market and is usually considered to be safe. Gold also acts as a hedging tool against a market correction.

You could also use gold ETFs to modify your portfolio and make it even powerful. During unstable market situations, diversification helps prevent heavy losses. Gold ETFs are used as collateral security for loans also.

However, with a wide range of investment options available in debt and equity, the allocation of gold should not generally exceed 15% of the total portfolio.

Various methods to Invest in Gold ETFs.

Via Demat/trading Account: Since gold exchange-traded funds are security that is bought and sold in electronic, in dematerialized form and not in physical form, you are required to have a Demat account to indulge in their trading. You could open a Demat account with any Discount broker such as Zerodha or Full-Service Broker Such as HDFC Securities, IIFL securities, etc.

Via Mutual Funds: Individuals with no adequate knowledge should let the experts in the field Invest on their behalf. Mutual Fund Houses such as Kotak Gold fund, Axis Gold Fund, HDFC Gold Fund, SBI Gold Fund, etc. are the popular ones in the business.

Via Private Fund Manager: Another option is to invest in Gold ETFs through a Private Fund Manager who manages our investments on our behalf. This can be expensive as they might charge hefty asset management fees.

Risks associated while Investing in Gold ETFs.
gold risk

Price Fluctuations: Just like in any equity product, the Net Asset Value (NAV) of the units issued under a gold ETF could increase or decrease as per the economic fluctuations.

Less Total Returns: Extra charges such as brokerage, commission, or fund management fees that are required to maintain a gold ETF can drop its total returns in comparison with the sale of physical gold.

Stock Market variation: We know Gold prices are inversely related to the stock market. If the Stock market experiences a continuous Bull run like the post-covid months, there are chances NAV of Gold units might fall.

CONCLUSION:

Only visionaries in the 90s and early 2000s might have forecasted that Gold prices would appreciate multiple folds. But now it is very difficult for an ordinary person to purchase Gold in the form of ornaments or for Investments.

For such individuals, funds like gold exchange-traded funds are best suited. However, it is always advisable to invest in accordance with your personal objectives. Invest after thorough research and analysis and go ahead as per your convenience.

Read more such informative blogs on our blog page, or visit our website, and enhance your financial knowledge. We also provide training for the next 6months along with daily Equity and options Analysis on our telegram Channel. To join our telegram channel click here.

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