Gold EFTs combines the best of two worlds – stock trading and gold investment. Gold has been the most sought-after investment product in the world for centuries as its value has increased over time. Apart from being interwoven into cultures, gold has evolved as a good investment. It’s a great portfolio diversifier and is used to hedge against inflation and currency debasement. While holding gold in the physical form like jewellery, bars or coins is cumbersome, gold ETFs come in the dematerialised form and are closer to the market price of the metal. Expenses incurred in buying, selling or making gold jewellery is also more than gold ETFs. ETFs or Exchange-Traded funds are traded on the stock exchanges based on the value of the underlying asset. Gold ETFs have only one underlying asset — gold. So if you are looking to profit from the incremental value of gold in the future, Gold ETF investment is a good option for you.
What is Gold ETF?
Gold ETFs are mutual funds schemes that track and reflect the value of this yellow metal. It is a passive investment instrument that invests in the gold bullion. One unit of gold ETF is equal to one gram of gold. These units are derivative contracts that can be bought and sold in the stock market. Although the fund is backed by the commodity, you do not own gold in the physical form. So when you redeem gold ETFs, you receive the cash equivalent of gold and not the metal itself.
How to Invest in Gold ETFs?
You can buy and sell Gold ETFs at market prices from the cash segment of the stock exchanges like any other company stock. To trade in gold ETFs, you require a DEMAT account and a trading account. Units can be bought online with the help of a stockbroker. Once you know how to invest in a Gold ETF, you can follow the given steps:
- Open online DEMAT and trading account
- Choose the fund you wish to purchase
- Place the order for the specified units through the broker’s portal
- Once the purchase order is matched with the sell order at the stock exchange, a confirmation is sent back to you on your phone for email
- You can either buy a lump sum or systematically invest at regular intervals
- Brokerages charge a nominal amount for the transaction.
Benefits of investing in Gold ETFs:
Gold ETFs are comparable to bonds as a defensive asset class that can be used by investors to hedge against political and economic disruptions. With gold as its underlying asset, it is less volatile as compared to equities. Some of the other benefits of gold ETFs are as follows:
Cost-effective – There are also no entry and exit loads for trading gold ETFs making them more profitable.
Transparency – Like stocks, gold ETFs are traded based on real-time gold prices. The information on prices is publicly available.
Ease of trade – Gold ETFs can be bought and sold instantly without any hassles. This gives ETFs a higher liquidity quotient.
Longevity – Holding gold in the DEMAT form gives it protection against theft and ease of storage. You can hold gold ETFs for a longer period.
Tax benefits – Gold ETFs do not attract wealth tax or securities transaction tax. The income from Gold ETFs are treated as long term capital gains tax.
As compared to physical gold, Gold ETF investment generates income through returns. They can also be used as collateral against loans. These make gold ETF a good investment option.