Mutual Fund

Investment Option: All about Gold ETFs

As we mentioned in the last article that the Gold ETFs are the best way to invest in Gold with minimum risk of impurity, and easy to buy and sell. Gold ETFs also gives us the opportunity to buy paper gold in the smaller denominations equivalent to 1 gm. It is a recent phenomenon to Indian market we are habitual of buying gold from Jewelers and Banks sometime and never bothered about exploring new ways to invest in Gold but in European market, it is a fairly old way of facilitating gains of Gold to retails investors. To answer queries I received on Gold ETFs, we will cover all aspects of Gold ETFs in this Article

What is Gold ETF?

Gold ETFs are the funds run by either Exchange or some fund houses. These companies offer a contract worth the price of 1 gm/ 0.5 gm gold to you. As the price of gold changes in market, the value of contract also changes and you can sold your contract at the market price to book the profit.

Are Gold ETFs safe to buy?

Most of the Gold ETFs are governed by very large financial institutions like SBI, UTI, Kotak, HDFC, ICICI etc. So there are virtually no chances of default in them until the global gold prices crash and no demand for gold, which is almost impossible.

Which All gold ETFs are there in market and how do they differ from each other?

The list of Gold ETFs currently available in market is given below. These Gold ETFs differ on following parameters

  • Offering company or Fund House
  • Denomination of underlying gold value 1 gm or 0.5 gm

Are returns on Gold ETFs same as return on actual gold prices?

The returns on Gold ETFs are not exactly same as actual gold prices but this is a good part of ETFs. Fund houses who manage the Gold ETFs keep the investment portfolio of gold in such a manner that it gives the best return for you while minimizing the downside risk on your investments. So in actual even if the gold prices fall steeply your losses will be minimal due to the precautionary measures taken by Fund houses by hedging that risk.

How to buy Gold ETFs?

Now the most important question; there are two ways to buy Gold ETFs one is to buy as mutual funds and another is to buy as Stocks from market. Both options are having their own advantages.

Buying from Exchange:

If you want to invest in Gold ETFs for smaller time frame which is less than year and you have a Demat account, it is better to buy from Stock Exchange directly because you can sell any time and buy any time. This transaction will levy the brokerage charges on you which will vary from 0.2% to 0.5% depending on your broking house.

Buying as Mutual Fund:

Ok I know last option sounds too hectic and difficult. The easy option to all people is to buy through mutual funds run by companies and one can invest in Gold ETFs through Systematic investment plan also. The only catch here is that if you investing for less than one year, you have to pay exit charges of 1% on the transaction amount. Else enjoy the return on your investments.

Does it have any tax implications on investors?

Yes it does have tax implication on your gains but investment for over one year will be treated as Long term capital gains and the corresponding taxes are lesser than the short term capital gain taxes.

The investment in Gold ETFs does not require you to pay any wealth tax to government while the actual gold purchase will.

Therefore, Gold ETFs are the best way to invest in Gold and get benefits of its return. Prefer buying for Long-terms and through mutual funds to remain safe from the downside risk. Enjoy minting money. Next article will be on Real Estate as investment option on 9th November.

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