Understanding Gold ETFs

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An ETF to imitate price trends of physical gold of very high purity

A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion.

Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments. Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company. Buying Gold ETFs means you are purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. Because of its direct gold pricing, there is a complete transparency on the holdings of a Gold ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments.

Purity & Price

Gold ETFs are represented by 99.5% pure physical gold bars. Unlike gold jewellery, gold ETF can be bought and sold at the same price Pan-India.

Where to buy

Gold ETFs can be bought on BSE/NSE through the broker using a demat account and trading account. A brokerage fee and minor fund management charges are applicable when buying or selling gold ETFs

Risks

Gold ETFs are subject to market risks impacting the price of gold. Gold ETFs are subject to SEBI Mutual Funds Regulations. Regular audit of the physical gold bought by fund houses by a statutory auditor is mandatory.

Who should buy

Gold ETFs are ideal for investors who wish to invest in gold but do not want to invest in physical gold due to the storage hassles / doubt about purity of gold and are also looking to get tax benefits. There is no premium or making charge, so investors stand to save money if their investment is substantial. What’s more, one can purchase as low as one unit (which is 1 gram). Other benefits include:

  • Purity of the gold is guaranteed and each unit is backed by physical gold of high purity.
  • Transparent and real time gold prices.
  • Listed and traded on stock exchange.
  • A tax efficient way to hold gold as the income earned from them is treated as long term capital gain. No wealth tax, no VAT and no sales tax.
  • No fear of theft - Safe and secure as units held in Demat. One also saves on safe deposit locker charges.
  • ETFs are accepted as collateral for loans.
  • No entry and exit load.

Some popular gold ETFs trading on NSE/BSE are:

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How to invest in Exchange Traded Funds (ETFs)?

You will need a demat account to invest into ETFs. You can invest using Niyo Money Stocks & ETFs feature once your demat account is active.

Disclaimer: This is not a recommendation. The purpose is solely educational in nature.

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