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How to Invest in Gold ETFs

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

Benefits of Gold ETFs

Following are the major benefits of Gold ETFs,

  • Provides excellent diversification of your portfolio
  • Hedge against inflation
  • Quick and convenient dealing through Demat account
  • Listed and traded on Stock Market just like a stock
  • Good control on the quality of gold
  • No storage and security issue for investors
  • Less carrying cost
  • Liquid
  • It is free from the risk of Theft
  • Ongoing Management is not required
  • Protects your wealth from high Inflation

Comparison of Gold-ETF with other Kinds of Gold Investments

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
Quality assurance Yes No Yes
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
Mutual Funds
Mutual Funds