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Gold ETFs are open-ended Mutual Fund schemes that will invest the money collected from investors in standard gold bullion. The investor's holding will be represented in units; each unit will be equal to one gram of gold at the time of allotment. As the price of gold rises, the price of the ETF is also expected to rise by the same amount. Similarly, a fall in the price of gold will also be reflected by a fall in the price of the ETF. It is a way to invest in gold without a physical delivery of gold. Gold ETFs are passively managed funds and are designed to provide high returns that would closely track the returns from physical gold in the spot market. An investor can buy and redeem the units either directly from the mutual fund or from the stock exchange.
Most gold ETFs are traded on the National Stock Exchange (NSE), so you need a broker who is a member of the NSE to purchase Gold ETFs. There are six gold ETFs in the market today, namely Gold Benchmark ETF, Kotak Gold, Quantum Gold, Reliance Gold ETF, UTI Gold ETF and SBI Gold ETS. The returns from all the gold ETFs over the last one year have been almost the same in all the funds. If you wish to invest on a monthly basis in Gold ETF, it is not possible by giving post-dated cheque; you will have to do so manually by buying the units through your stock broker. The units will get credited to your demat account
Following are the major benefits of Gold ETFs,
Gold investments can be done through different ways such as investment in Physical Gold, through commodity exchange and through Gold ETFs. While comparing with other means of investment Gold ETF has some advantage. With the help of below given table you can compare the benefits of Gold ETFs with Physical Gold and Commodity Exchange.
|Features||Gold ETF||Physical Gold||Commodity Exchange|
|Low cost of Holding||Yes||No|
|Availability in small Denominations||Yes||Yes||Yes|
|Long Term Investment||Yes||Yes|
|Exemption from Wealth Tax||Yes||No||Yes|
|Free from risk of Theft||Yes||No||Yes|
|Long Term Capital Gain Tax||After 1 year||No||After 3 years|