A Gold ETF is an exchange-traded fund (ETF) that seeks to track the price of physical gold in the United States. They are gold-based passive investment instruments that invest in gold bullion.
In a nutshell, Gold ETFs are units that represent physical gold, which can be paper or dematerialised. One Gold ETF unit is equal to one gramme of gold and is backed by pure physical gold. Gold ETFs combine the flexibility of stock investing with the ease of gold investing.
Gold ETFs, like any other stock, are listed and traded on the National Stock Exchange of India (NSE) and the Bombay Stock Exchange Ltd. (BSE). Gold ETFs, like any other company stock, trade on the cash segment of the BSE and NSE and can be bought and sold at market prices regularly.
How does Gold ETF work?
- Price & Purity: Gold ETFs comprise 99.5% pure physical gold bars. Gold ETF prices are listed on the BSE/NSE websites and can be purchased or sold at any time through a stock broker. Unlike gold jewellery, gold ETFs can be bought and sold at the same price across India.
- Where to Purchase: Gold ETFs are bought on the BSE/NSE through a broker using a Demat and trading account. A brokerage fee and minor fund management charges apply when purchasing or selling gold ETFs.
What does buying Gold ETFs mean?
Purchasing Gold ETFs means purchasing gold in electronic form. Gold ETFs can be bought and sold in the same way that stocks can. When you redeem a Gold ETF, you receive not physical gold but the cash equivalent. Gold ETFs are traded using a dematerialised account (Demat) and a broker, making it an extremely convenient way to invest in gold electronically.
A Gold ETF India’s holdings are transparent due to its direct gold pricing. Furthermore, ETFs have much lower expenses than physical gold investments because of their unique structure and creation mechanism.
Gold ETFs are vulnerable to market risks that affect gold prices. A statutory auditor must audit the physical gold purchased by fund houses regularly.
Who should invest in Gold ETFs?
Best Gold ETFs are ideal for investors who want to invest in gold but do not want to invest in physical gold because of storage issues or concerns about the purity of gold and who also want to benefit from tax breaks. As there is no premium or generating charge, investors can save money if their investment is significant. Furthermore, a single unit can be purchased (which is 1 gram).
Benefits of buying Gold ETF Units
- The purity of the gold is secured, and each unit is endorsed by high-purity physical gold.
- Gold prices are transparent and updated in real-time.
- Stock exchange listing and trading
- A tax-efficient way to hold gold is because its profits are managed as a long-term capital gain.
- There is no wealth, security transaction, VAT, or sales tax.
- Don’t worry about theft because units are kept safe and secure in a Demat. One also saves money on safe deposit box fees.
- Indirect taxes on physical gold include the 3% GST on the purchase and sale price. ETF transactions save this expenditure because ETFs are equities, and securities are particularly free of GST.
- ETFs are accepted as loan collateral.
- There is no entry or exit load.
How to sell/redeem Gold ETF
The best Gold ETF in India can be purchased on the stock exchange through a broker with a Demat and trading account. ETFs are best used as a tool to benefit from the price of gold rather than to gain access to physical gold because they are supported by physical gold. When one liquidates Gold ETF Units, one is paid according to the domestic market price of gold. AMCs also allow redemption of Gold ETF Fund Units in the form of physical gold in ‘Creation Unit’ size if the equivalent of 1kg of gold is held in ETFs or multiples thereof.
Experts believe that including a Gold ETF component in your investment portfolio will protect it from downside risks. Depending on your risk tolerance and available cash, you could invest 5 to 10% of your money in gold. The essential factor is to have a well-diversified portfolio, and gold investing can be an excellent way to do so. ICICI gold ETF is the best recommended to invest!
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