Gold has always been a popular investment option in India, providing a hedge against market volatility, inflation, and economic uncertainty. But keeping gold in physical form also comes with additional responsibilities and expenses. You must invest in a good locker and look after your gold diligently. This is where gold exchange traded funds (ETFs) help you.
Gold ETFs invest in and hold physical gold on behalf of investors. These ETFs are traded on stock exchanges and can be purchased and sold like any other stock. The price of a gold ETF is based on ever-fluctuating gold prices. Through gold ETF investments, investors are able to get access to investing in gold while avoiding the inconvenience of storage costs and security risks of keeping physical gold.
Gold ETFs are not just about investing in the yellow metal. They also provide liquidity, tax efficiency, and flexibility. If the idea of investing in Gold ETFs sounds interesting, here is everything you need to know about it.
How do gold exchange traded funds work?
Gold ETFs are listed and traded on NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). One gold ETF unit equals one gram of gold with 99.5% purity. The physical gold is stored in authorized banks’ vaults and acts as an underlying asset from which the units derive value. An investor in a gold ETF does not own the physical gold but owns units that represent a certain weight of gold.
Critical advantages of gold ETFs
Some significant advantages of gold ETFs are:
- No storage problem: Since you buy gold in electronic form, there are no storage and maintenance issues.
- No wealth tax: Owning physical gold that exceeds a certain limit incurs a wealth tax in India. But gold ETFs do not attract wealth tax.
- GST benefits: Physical gold is generally subjected to indirect taxes like GST (Goods and Services Tax). However, the GST does not apply to ETF transactions, as ETFs are securities.
- Transparent You can purchase and sell the gold at real timemarket prices.
- No theft risks: When investing in a gold ETF, you need not worry about your gold being stolen because you don’t own any physical gold during the transaction. Instead, you are simply investing in the price of gold.
- Liquidity: Investors canbuy gold ETFs with a few clicks and store gold ETFs in a Demat account.
How can I invest in Gold ETF?
To invest in a gold ETF, you must open a Demat and trading account online by submitting the relevant documents like identity proof, PAN card, and residential proof. After creating the account, select the kind of gold ETF to invest in. Place the order through the broker or bank. After that, you will receive a confirmation on your registered phone number or email ID, and a nominal fee will be deducted during the transaction.
Also, you can buy in a lump sum or spread investments over a period. However, investing systematically rather than a large sum at once is advisable.
If you are considering investing in gold for the long-term, look beyond the traditional way of buying gold jewelry and consider investing in gold ETFs. However, it is equally essential to be cautious while investing in gold ETFs. It is crucial to figure out your goals, analyze your risk tolerance, research the fund, and understand how it works before investing.
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