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How to Invest in Gold ETFs

    IndianMoney.com Research Team | Wednesday, July 29,2009, 07:22 PM
 

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 spot 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

 

Availability in small Denominations

Yes

Yes

Yes

Long Term Investment

Yes

Yes

 

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.

Year (March)

Price/10 gm (Rs)

Year (March)

Price/10 gm (Rs)

Year (March)

Price/10 gm (Rs)

1925

18

1975

540

2001

4410

1930

18

1980

1330

2002

5030

1935

30

1985

2130

2003

5260

1940

36

1990

3200

2004

6005

1945

62

1995

4658

2005

6165

1950

99

1996

5713

2006

8210

1955

79

1997

4750

2007

9500

1960

111

1998

4050

2008

13400

1965

71

1999

4220

2009

15000

1970

184

       

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.

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