Gold ETF (exchange-traded fund) is a commodity-based mutual fund that invests in Gold. This fund performs the same as stock and trades on stock exchanges.
Gold ETFs invest in Original physical gold bars of 99.5% purity. The price of Gold ETFs is the same across India, unlike the price of gold biscuits and bars, which are different in all geographies. With a Demat account, an investor can easily buy gold ETFs in the stock market. ETFs attract broker charges and fund management charges.
It is good to invest in these schemes as they are backed by physical Gold and save us from the risk of theft and loss. Investors can enjoy the benefits of the change in the price of Gold just by buying gold ETF instead of owning physical Gold. Also, an investor can liquidate their investments at the market price of Gold. If an investor holds gold ETFs equivalent to 1 kg gold or multiples thereof, they can redeem their investment in physical gold form.
Gold ETF fund can be used as an industry-traded fund. Investors use it to broaden and diversify their portfolios. This fund supplies an easier way to invest in the gold industry. The best use of gold ETFs is by hedging against inflation, making them attractive insurance in one investment portfolio.
Gold ETFs are considered a Global Asset Class, and there are various reasons why GOLD ETFs are necessary for retail investors` portfolios and how they are better than traditional forms of investing in Gold.
1, No worry about adulteration or impurities
2, Held in Electronic Form
3, Can track your investment values in real-time
4 , Extremely Liquid
Who should invest in Gold ETF?
Gold ETF is best for an investor who wants to track and reflect the actual price of physical Gold in real-time. Investors who wish to own real physical Gold but are scared of loss and want to increase their income via investment should invest in Gold ETF.
Gold-based funds have outperformed the benchmark stock index for the last few years. Gold ETF charges only 0.5% to 1% brokerage, making these funds more suitable for the investor who wants to save money on brokerage.
Advantage
Taxability: Capital gains or returns from Gold ETFs are taxable based on the holding period of the Gold Fund. If an investor sold within 36 months (about 3 years), it would be considered a short-term investment, and then capital gains are taxable at the investors’ income tax slab rates of a particular person. If the investment is sold after 36 months (about 3 years), it would be considered a long-term investment. The gains are taxable at 20 plus percent after indexation benefits and 10% without indexation benefits.
- Usage as collateral: Gold ETF can be presented as collateral against any loan from any financial institution. It delivers more convenience than the entire traditional process.
- Flexibility: Gold ETFs can be bought and sold on an online platform, and they can be stored in a Demat account. Hence, there is no risk of loss.
- Liquidity: Gold ETFs are traded on a stock exchange and are highly liquid.
- Price of Gold: Gold ETF’s price goes hand in hand with actual Gold. It doesn’t differ from physical Gold.
- Smaller investment: One unit of the Gold ETF Fund scheme equals one gram of Gold, making it convenient for small investors to make investments.
- Costs: Gold ETFs have a maximum expense ratio of 1%. This means there are added brokerage and transaction costs if traded on stock exchanges.
- Smooth Transactions: Buying and selling of ETF funds are done on the stock market during market hours. The price of the ETF is not affected by local price differences.
- Secure: Gold ETF schemes are more accessible and safer investment options than physical Gold. The investor doesn’t need to worry about theft, storage, or bearing any other costs for a locker or making changes.
- Portfolio Diversification: Gold schemes are good investment options for the diversification of portfolios. During unstable market conditions, gold helps in reducing the risk.
