What is Gold ETF?

As Good as Gold

A gold ETF is an exchange-traded fund and is a substitute for physical gold. Every investor knows that investing in physical gold can be cumbersome and insecure. In comes a gold ETF, which helps you stay invested in gold, without actually having to own any physical gold. Also, gold ETF value is in line with the price of gold globally, so you don’t have to worry about whether you’ll get the same value as physical gold. So, if gold prices go up, the gold ETF value also increases. In a gold ETF, which is a commodity exchange traded fund, the only underlying asset is gold. One gold ETF unit is equivalent to one gram of gold.

Gold ETFs are traded on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

How to trade in Gold ETFs?

In order for you to trade in gold ETFs, you would need to open a demat account. With a demat and trading account, you can invest in gold on an online platform through a broker. This is a seamless and secure way of buying or selling gold ETFs.

Benefits of Gold ETFs

• When you buy gold jewellery, you may be worried about its purity. On the other hand, when you are trading in gold ETFs, purity is a given as every unit is the equivalent of physical gold of the highest purity.
• When you are investing in gold ETFs, there is no storage hassle, as you are dealing with a dematerialised form of the yellow metal. If you were to buy gold coins, bars or jewellery, storage and safety are huge hassles.
• Investing in physical gold, particularly by way of jewellery, means you have to spend on making charges which can be anywhere in the 10-20 per cent range.
• In terms of liquidity, gold ETFs offer a huge advantage over physical gold. You just need to open a demat account and start trading. If it was jewellery, you would need to actually visit a store to transact. If it was coins or gold bars, you would still be required to make a visit. With a trading account, you can effortlessly trade on gold ETF during trading hours at low transaction expenses gold which is not possible for physical gold. There is no entry/exit load when you buy/sell gold ETFs via your trading account.
• Gold ETFs don’t involve VAT, sales tax or wealth tax. Also, investing in gold ETFs is tax-efficient as any income you earn from them is classified as long-term capital gain.
• Wish to borrow a loan? Gold ETFs can be used as collateral for loans.

Who should invest in Gold ETFs?

If you are someone who wants to use gold as an investment option rather than for use then gold ETFs are just right for you. You can use gold ETFs as a hedge against any kind of volatility. It helps in diversifying your assets and ensuring your portfolio is well- balanced;when gold prices dip or increase, you can accordingly tweak your asset allocation strategy and ensure that risk is minimised and gains are maintained.

How to invest in Gold ETFs?

• Open a demat account; typically platforms offer a demat and trading account that you can open online.
• You may need to provide some basic documentation such as PAN card, and proof of address and identity.
• Once you get yourself an account, you can choose a gold ETF and buy one.
• The units get credited to your demat account.
• When you wish to redeem your ETF, you will receive the cash equivalent of the value of gold.

In conclusion

Gold ETFs are ideal for those who wish to use gold as an investment option. Physical gold is hard to store and protect from theft. Gold in a dematerialised form is easy to sell or buy, and is highly secure. Gold ETFs are transparent and can be bought at low denominations, as low as the equivalent of one gram of gold. Trading in gold ETFs is easy and all you have to do is open a demat account. With a demat and trading account, you can seamlessly trade on any of your smart devices and also avail of research and analysis to help you make informed choices.