alexa
Indianmoney.com Missed Call Number
Home Articles How to Invest in Gold ETFs?

How to Invest in Gold ETFs?

IndianMoney.com Research Team | Updated On Tuesday, September 04,2018, 03:06 PM

5.0 / 5 based on 1 User Reviews

How to Invest in Gold ETFs?

 

 

Gold ETFs are open-ended Mutual Fund schemes that will invest the money collected from investors in standard gold bullion. The investor's holding will be represented in units; each unit will be equal to one gram of gold at the time of allotment. As the price of gold rises, the price of the ETF is also expected to rise by the same amount. Similarly, a fall in the price of gold will also be reflected by a fall in the price of the ETF. It is a way to invest in gold without a physical delivery of gold. Gold ETFs are passively managed funds and are designed to provide high returns that would closely track the returns from physical gold in the stock market. An investor can buy and redeem the units either directly from the mutual fund or from the stock exchange.

Most gold ETFs are traded on the National Stock Exchange (NSE), so you need a broker who is a member of the NSE to purchase Gold ETFs. There are six gold ETFs in the market today, namely Gold Benchmark ETF, Kotak Gold, Quantum Gold, Reliance Gold ETF, UTI Gold ETF and SBI Gold ETS. The returns from all the gold ETFs over the last one year have been almost the same in all the funds. If you wish to invest on a monthly basis in Gold ETF, it is not possible by giving post-dated cheque; you will have to do so manually by buying the units through your stock broker. The units will get credited to your demat account.

Benefits of Gold ETFs

Following are the major benefits of Gold ETFs:

  • Provides excellent diversification of your portfolio
  • Hedge against inflation
  • Quick and convenient dealing through Demat account
  • Listed and traded on Stock Market just like a stock
  • Good control on the quality of gold
  • No storage and security issue for investors
  • Less carrying cost
  • Liquid
  • It is free from the risk of Theft
  • Ongoing Management is not required
  • Protects your wealth from high Inflation
  • Comparison of Gold-ETF with other Kinds of Gold Investments

Gold investments can be done through different ways such as investment in Physical Gold, through commodity exchange and through Gold ETFs. While comparing with other means of investment Gold ETF has some advantage. With the help of below given table you can compare the benefits of Gold ETFs with Physical Gold and Commodity Exchange.

 

Features

Gold ETF

Physical Gold

Commodity Exchange

Quality assurance

Yes

No

Yes

Low cost of Holding

Yes

No

No

Availability in small Denominations

Yes

Yes

Yes

Long Term Investment

Yes

Yes

No

Exemption from Wealth Tax

Yes

No

Yes

Free from risk of Theft

Yes

No

Yes

Long Term Capital Gain Tax

After 1 year

No

After 3 years

Historical Gold Prices

The trend of gold prices in India in the last few years is given in Table 1 which reveals that between 1925 and 2009 gold appreciated by more than 800 times. 

How to Invest in Gold ETFs?

Investing in Gold ETF is just like you invest in shares. For Buying Gold ETF you need to have a demat account. Also, you need to register yourself with a broker, who has membership of NSE. Once these ETFs are listed, the daily movement in their prices can be tracked online like the way you keep track of your equity portfolio.

The price of Gold ETF unit will track the price of physical gold in the international market like the London Bullion Market association. Generally unit price will be equal to the price of 1 gram of physical gold. There are ETFs with 0.5 gram of gold also (e.g.: Quantum Gold Exchange Traded Fund) Listing in NSE will help the buyers and sellers meet on a common platform for trading in Gold ETFs. This will facilitate them to convert their units into cash easily.

Gold ETFs Charges

For trading in gold ETFs you need to pay a small brokerage fee for your broker. Only after paying the brokerage fee you can use the trading platform. Fortunately, the brokerage charges here are not too high. They will range from 0.4 per cent to 0.6 per cent of your transaction value. You will be paying Rs 4 to Rs 6 as brokerage charges if you buy units worth Rs 10,000, it is not a huge amount.

See Also: What are Gold Exchange Traded Funds and How Do They Work?

Tax Implications on Gold ETFs

Since Gold ETFs are being sold as non-equity schemes there will be dividend distribution tax (DDT) that you will have to pay. Dividend will be taxable in the hands of investors if and when these Gold ETFs declare dividends. In simple terms dividend is money distributed to unit holders if the scheme declares a profit. But the thing is that none of the Gold ETFs in India have declared any dividend so far. So there is no question of paying DDT.

However, the good thing is that there is no Wealth Tax or Securities Transaction Tax (STT), to pay when you sell your Gold ETFs. STT is applicable only when shares are bought or sold. But bullion and jewellery are subject to capital gains tax and wealth tax, without any exemptions at all. ETFs are exempted from Wealth Tax because they convert your money into gold which again is converted into units in demat form as a result you don't own gold in physical form. Therefore there is no wealth tax.

Gold ETF Purity

The Mutual Fund Company will appoint a custodian for the safe keeping of the gold bought on behalf of investors. The amount of physical gold held by the custodian will be of superior purity. In other words, this gold will be 99.5 per cent pure. We call this degree of purity as 24 carat gold. The Gold held with the custodian will be fully insured and will not be used for any lending.

There are many reasons to invest in Gold ETFs. It is easier to hold gold and there is no wealth tax on Gold ETFs as in the case of physical gold. Also, long-term capital gains Tax is applicable after just one year. We believe that gold is a very good hedge against inflation and gold is a very good all-seasons asset. The purchasing power of gold remains constant irrespective of the situation.

 

Did you find this article useful? You can Rate us
5.0 / 5 based on 1 User Reviews
Article Author

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

Subscribe to our Youtube Channel

 
Get the Best Financial Advice on Accident PlanClick Here

Most Popular

Why one must never neglect estate planning

07 January 2014, Tuesday

Things to Know About Hybrid Mutual Funds

26 November 2013, Tuesday

What is Car Insurance? Why is it important?

21 October 2009, Wednesday

Latest Stories

Stock Exchanges In India

12 November 2018, Monday

What is a Demand Deposit?

12 November 2018, Monday

Mutual Fund Returns

09 November 2018, Friday

How To Open Demat Account?

09 November 2018, Friday

Link Aadhaar Card To Bharat Gas

06 November 2018, Tuesday

Popular Tags

GST
UK
 
Get the Best Financial Advice on Accident PlanClick Here

Calculators

Get It now!