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What are Gold Exchange Traded Funds or Gold ETFs?

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What makes gold irresistible to everyone? What is a Gold ETF? Even as you may consider answering these questions, the contents of this text will explain why this precious metal is popular among one and all. Gold ETFs serve as a boon for investors who are not keen to possess it but are keen to increase their earnings by trading on it. Investing in Gold ETF is safe as the investments are supported by the gold of 99.5% purity. You do not have to worry about incurring extra costs like those involved in purchasing physical gold. The commodity itself is not remotely related to either bonds or stocks. Investing in Gold ETFs is similar to investing in open-ended mutual fund schemes. All you have to do is buy at least 1 unit of gold, which is equivalent to 1 gram of gold, and you can start investing in Gold ETFs. A Demat account is a precondition for all investors in the share market. If you choose to invest in a Gold ETF yourself, you need to have an online trading account or can start trading with the help of your stockbroker.

Did you know?

The United States of America has the largest amount of official gold holdings in the world.

 

What Is a Gold Exchange Traded Fund?

Gold Exchange Traded Fund is popularly referred to as ‘paper gold’. It is a passive instrument which invests in gold bullion. A Gold Exchange Traded Fund or Gold ETF is a unit representing physical gold but only on paper. It is based on gold prices. You can transact in them either through your stockbroker or yourself if you are familiar with online stock trading. If you are a keen investor desirous of trading in Gold ETFs, you have to purchase a minimum of 1 unit of gold. This is equivalent to 1 gm of gold. You can make a Gold ETF investment from the stock exchange during active hours. When you make a long-term investment in these instruments, you can be assured of a good volume of capital gains. These investments do not attract any wealth tax, making it easy for you to enjoy tax benefits. The price of this precious yellow metal does not fluctuate, so even if the stock market turns volatile, your returns on these investments do not suffer much loss. Many individuals question the dividend returns from such investments. However, you will enjoy dividend benefits but only if your Gold ETF investments are equity-based. In simple words, this means that the investments are made in stocks related to this precious metal.

Also Read: Gold Monetisation Scheme: How to Earn Income From Your Gold?

           

Who Should Invest in Gold ETFs?

It is wise to protect your equity in the event of economic instability or volatility. Several individuals have very large portfolios in the stock market. These types of investors choose to diversify their investments by investing in Gold ETFs. Most conservative investors resort to investing in Gold ETFs. The risks are nominal, and your portfolio is well-protected. Individuals who aren’t particularly interested in holding physical gold as an investment invest in Gold ETFs. They find it practical because it helps them augment their monetary returns when they trade this valuable metal on the stock exchange. Global uncertainty makes investors divert their money from equities to Gold Exchange Traded Funds.

Benefits of Investing in Gold ETFs

Investing in Gold Exchange Traded Funds has a lot of benefits for investors. Some of these are given below:

1. The investments made are in the purest form of gold, namely, 24 carats (99% purity)

2. Investing in Gold ETFs is very simple and hassle-free. You need a Demat account and an online trading account if you choose to do it yourself. The brokerage fees are nominal compared to making investments in equities or other financial instruments.

3. You don’t have to bear the burden of an entry fee or an exit fee.

4. You can start with a small investment, i.e. ₹ 1,000 only.

5. Investing in Gold ETF does not demand a lock-in period like other investments

6. One of the key benefits of investing in a Gold ETF is the ease with which such an investment can be purchased and sold at an ongoing price.

7. You are relieved of storage hassles. A Gold ETF investment is a passive investment or a paper investment. Unlike physical gold, which keeps you on your toes regarding storage and safety, these investments are fuss-free investments.

8. You are relieved of tax payments. This type of investment does not attract any wealth or sales tax, and it is also free of VAT.

9. Gold ETF investments protect you from global economic volatility as the price of gold rarely fluctuates. Your other equity-based investments may get impacted in a volatile scenario, but your Gold ETF returns will never spiral down.

10. You can make a one-time investment or adopt a systematic investment plan (SIP).

11. Gold ETFs serve as effective security instruments when you require loans from banks or other money-lending entities.

12. A Gold Exchange Traded Fund does not attract any GST burden when you invest.

How Do Gold ETFs Work?

A Gold Exchange Traded Fund works entirely on the prevailing market gold rates. They are identical to regular shares, and individuals trade-in them just like they trade in equity shares and other financial instruments. When you invest in Gold ETFs, you are investing in several gold units but in the form of paper. You can invest in these types of ETFs with very little revenue. You can also liquidate them as per your need and requirement without any hindrance. However, Gold ETFs are vulnerable to macroeconomic volatility but do not cause you heavy losses. These investments are regulated by the Security Exchange Board of India (SEBI). Most investors tend to confuse them with regular stocks and shares. Gold ETFs protect the overall value of your portfolio in times of political or economic instability.

Investing in Gold ETF

Most first-timers are wary about the process of investing in Gold ETFs. This type of investment involves utmost ease of transaction. All you require is a Demat account and an online trading account if you choose to do it yourself. Several investors take the assistance of an individual and trusted stockbroker or a stockbroker affiliated with their respective banks. You have to furnish some documents to open a Demat account. These include the following:

  • Your pan card
  • Proof of identity – electricity bill, passport, Aadhar card
  • Proof of residence

Once your Demat account is activated, you can select the Gold ETF and ask your stockbroker to place the order. You are notified of the same as soon as the transaction gets executed. 

Following are the various steps explained in simple words:

1. Log on to your Demat account (which you have opened). Ensure you have funds to initiate the said trading amount

2. Select the Gold ETF of your choice

3. You can either choose between making a one-time investment into a couple of gold units or choosing a systematic investment planning (SIP) scheme

4. Once you decide on the schemes and the number of units, your Demat account gets debited for the said amount in cash. The brokerage involved will also be debited.

5. The number of gold units you purchased gets credited to your Demat account.

                         

Buying Digital Gold

The digital gold has been a popular investment in recent years. Digital gold is a great investment because you may start buying it for as little as ₹1. It can be sold or converted to physical gold at any time at the current gold rate in India. Continue to save to buy gold, with one digital unit equaling one gram of gold. Keep your gold in a digital vault until you’re ready to payout. It can be sold at the 916 gold rate in India or converted to real gold at any time and mailed to one’s address in tamper-proof packaging.

Investment in digital gold becomes easier and more secure with a platform like Legaltree. Invest a small amount of money in gold until maturity, and then keep it in an insured locker.

Also Read: Steps to Calculate the Gold Price for Jewellery

Trading or Selling Digital Gold

Digital gold trading does not demand extensive financial knowledge, and it can be purchased, sold, or traded electronically. To buy digital gold, all you need is a smartphone, a solid internet connection, and a platform like Legaltree.

The general procedure is as follows:

  • Enter the desired purchase amount in INR or grams.
  • Choose a payment method and submit your KYC verification documents.
  • Make the required payment. Your locker instantaneously reflects the digital gold.
  • Wait for the appropriate moment to sell your digital gold on the site.
  • You can even get coins or gold bars delivered to your house.

Conclusion

Gold is one metal which continues to excite investors. Earlier, people used to buy gold as a futuristic investment. Today the scene has changed. People tend to invest more in the stock market, which has proved to be lucrative. However, geopolitical upheavals make your portfolio vulnerable to huge losses. This has made individuals invest in Gold Exchange Traded Funds that are not physical ownership of the yellow metal but a passive investment. Such investments are a protective barrier to the rest of your portfolio when volatility creates a huge stir in global markets. This article has outlined all the advantages of Gold ETFs which will give you an insight into their significance and how they protect your other investments.
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