Investing in gold has always been a preferred choice in India, especially because it is seen as a safe and stable asset. Traditionally, people would buy physical gold in the form of jewellery or coins, but now there’s a modern alternative: Gold Exchange Traded Funds (ETFs). Not only does buying a Gold ETF make investing in gold more accessible and flexible, but it also eliminates many of the challenges associated with physical gold. Here’s everything you need to know about why Gold ETFs are becoming a popular choice among investors and how to get started.
What is a Gold ETF?
Gold ETF, or Gold Exchange Traded Fund, is a financial product that allows you to invest in gold without actually owning physical gold. Think of it as a digital way to buy and sell gold. Each unit of a Gold ETF represents 1 gram of gold, and it’s traded on stock exchanges like BSE and NSE just like shares. When you invest in a Gold ETF, you don’t receive physical gold but rather an electronic unit of gold that can be held in your demat account. You can buy or sell these units at market prices, providing a convenient and secure way to own gold.
Why Choose Gold ETFs Over Physical Gold?
Investing in Gold ETFs offers several advantages over buying gold jewellery or coins. Here are the key reasons why Gold ETFs are considered a smart choice:
- No Storage or Security Worries
When you buy physical gold, you need a safe place to store it, and lockers often come with additional charges. Gold ETFs, being digital, eliminate the risk of theft or storage issues. Your gold investment is stored securely in your demat account without the need for physical lockers or security measures. - Lower Costs Compared to Jewellery
Buying gold jewellery usually involves making charges, which can increase your initial investment by up to 10% or more. With Gold ETFs, you only pay a small brokerage fee (usually 1% or less), and there are no additional making charges. This makes Gold ETFs more cost-effective for investment purposes. - Easy Liquidity
Gold ETFs are highly liquid, meaning you can buy or sell units on the stock exchange at any time. This flexibility is particularly useful in times of financial need, as you can sell your Gold ETF units quickly and easily. Unlike jewellery, where finding a buyer or getting fair market value can be challenging, Gold ETFs can be sold instantly at prevailing market prices. - Loan Security
Just like physical gold, Gold ETFs can also be used as collateral when taking a loan. Financial institutions accept Gold ETFs as security, which can help you secure loans during emergencies or for other needs. - Transparent Pricing
The value of Gold ETFs is directly tied to the current market price of gold, which makes pricing transparent and fair. Physical gold prices often vary by location and include additional charges, while Gold ETF prices reflect real-time market movements. This transparency is a big advantage for investors who want clarity in their investments. - Tax Benefits
While tax policies may vary, holding Gold ETFs for a longer period can provide certain tax benefits. Gains from Gold ETFs held for more than three years are taxed at lower rates, making them a potentially more tax-efficient investment than short-term gold investments.
How to Invest in Gold ETFs
Investing in Gold ETFs is simple and only requires a few steps. Here’s how you can start:
- Open a Demat Account:
You’ll need a demat and trading account with a registered brokerage to buy Gold ETFs. This account will hold your Gold ETF units just like shares. - Select the Gold ETF Scheme:
Many asset management companies offer Gold ETFs, and there are around 17 schemes in the Indian market. Research each scheme’s past performance, fees, and features to decide which one suits your investment goals. - Place an Order:
Once you’ve chosen your Gold ETF, you can buy units on the NSE or BSE through your trading account. The transaction will be processed within two working days, and the ETF units will appear in your demat account. - Manage and Monitor Your Investment:
Since Gold ETFs reflect the price of gold, monitor the market regularly to make informed decisions on when to buy or sell your units. Gold ETFs allow you to manage your investment according to your financial needs and market trends.
Current Performance of Gold ETFs
Gold ETFs have shown strong returns in recent years, reflecting gold’s appeal as a safe investment. According to recent data, the average one-year return for Gold ETFs in India has been around 29.12%, while the three-year average return is approximately 16.93%, and the five-year average is about 13.59%. LIC MF Gold ETF has consistently delivered the highest returns across different time frames, making it a popular choice for investors.
Summary of Benefits
Gold ETFs offer a streamlined and secure way to invest in gold without the challenges of physical ownership. Here’s a quick recap of why they’re advantageous:
- No risk of theft or storage costs
- Minimal brokerage fees and no making charges
- Flexible and instant liquidity
- Loan security during emergencies
- Transparent pricing linked to the market
Investing in Gold ETFs gives you all the benefits of owning gold without the extra costs and hassle. As more investors turn to digital assets, Gold ETFs have become an attractive option for those looking to diversify their portfolio with gold. Whether you’re a beginner or an experienced investor, Gold ETFs provide a convenient, cost-effective way to invest in this precious metal.
