Gold ETFs are investment instruments based on gold that can be traded on a stock exchange. To be clear, Gold ETFs are units of physical gold, backed up by physical gold. Each unit of the ETF represents 1gm of pure gold. In this way, an investor can invest in stocks instead of physical gold. In India, Gold ETFs are traded through the National Stock Exchange of India and Bombay Stock Exchange continuously at existing market prices. However, it is to be noted that, unlike Digital Gold, an investor cannot redeem the physical gold; instead, they are only paid in cash upon selling their Gold ETFs. Gold ETFs are one of the best ways out there to invest in gold and diversify one’s portfolio. Gold ETFs also act as a hedge against market volatility and economic turmoil. In situations of economic depression, the price of gold can significantly skyrocket even when other currencies perform poorly. With recent technological advancements, you can easily trade Gold ETFs online through a Demat account. This is one of the major reasons why investing in gold is still popular among experts.
Investing in physical gold in the form of bars, coins or jewelry is costlier because of the storage, insurance, and manufacturing costs that come with it. Compared to them, Gold ETFs are better suited for an investor who wants to invest in gold but doesn’t want any storage issues or risks associated with physical gold. Another advantage of Gold ETFs is that they can be bought in comparatively lower denominations, the lowest being 1 gm. Gold ETFs also don’t have any wealth or security transaction tax, and they are also devoid of value-added tax, thus allowing investors to save money on investment taxes. However, they come with capital gain taxes. The short-term capital gains that come from less than three years of holding period are added to your income, while the long-term capital gains that come from a holding period of more than three years are susceptible to 20% tax. Gold ETFs also don’t have entry or exit loads- meaning investors don’t have to pay any additional charges while transacting them. Yet another advantage of investing in Gold ETFs is that they can be used as loan collateral.
Gold ETFs are also a highly regulated market, which ensures protection for investors. For this reason, you should look into royalties. In India, Gold ETFs are regulated by SEBI. Investing in Gold ETFs also provides an investor with transparency as these instruments are traded just like any other stock on the exchange. Investing in Gold ETFs should only be a choice if the investor strictly doesn’t want to invest in any physical gold. To choose a suitable Gold ETF, study the past performance of the fund. You should choose an ETF with high trade volumes and minimum tracking error.