What are Gold ETFs?
A gold ETF is a type of Exchange Traded Fund that aims to track the price of domestic physical gold in the local market. A gold ETF fund is a passively managed fund that invests in gold bullion (gold that is 99.5% pure) and allows investors to profit from the change in domestic gold prices without buying and storing physical gold. Similar to other types of ETFs that include a basket of securities, gold ETFs contain units of high purity gold where one unit is equal to one gram of gold. The funds trade on the stock exchanges with fluctuations in the gold ETF share price.
Who Should Invest in Gold ETFs?
Gold ETFs allow investors to invest in high purity gold without the hassle of physical safe storage. They provide adequate opportunities for investors to gain exposure to one of the most precious and in-demand commodities and ensure their portfolio is sufficiently diversified.
Gold ETF funds come with lower brokerage than other actively managed funds, making them an ideal investment choice for investors who want to track the real-time price of domestic physical gold but want to save more on commission charges. Furthermore, investors who want to invest in high-purity gold can invest in gold ETFs without having to worry about the purity, as in the case of buying physical gold. As gold ETFs are listed on the stock market, it becomes relatively easy to analyse gold ETF share price and invest through a time-effective trading process.
Benefits of Investing in Gold ETFs:
Most investors buy physical gold to sell when the price is higher to make profits. However, the cost of safe storage and the hassle of physically selling the gold seeps into the overall profits. Gold ETFs allow investors to track the same prices of gold without cutting down on profits. Gold ETFs fund provides the following benefits to the investors:
No entry and exit loads: Unlike actively traded funds that levy an entry and exit load on investors, no such charges are levied in the case of gold ETFs. When investors buy gold ETFs, they only have to pay a small brokerage amount which is lower than other funds. It allows for better profits without the costs overtaking the overall realised returns.
Trading Process: Buying gold ETFs is a straightforward process when compared to buying physical gold. These types of funds trade on the stock exchanges and have a gold ETFs share price, similar to trading stocks. Investors can buy and sell gold ETFs without any limitations within the trading sessions with just a few clicks online.
Real-time gold prices: Physical gold can not be bought and sold at the real-time price of domestic gold. When there is a high volume order, this change in real-time price can be significant. Gold ETFs are listed on the stock exchanges and fluctuate in the gold ETF share price, allowing investors to trade domestic physical gold prices in real-time to make quick profits.
Taxability: Gold ETFs do not attract taxes and expenses such as VAT or SAT, thereby saving on paying a portion of your profits as taxes. Only a capital gains tax is levied on gold ETFs.
How to Invest in Gold ETFs?
Gold ETFs have their own gold ETF share price and are listed on the stock exchanges. They can be bought and sold similar to stocks. However, you have to open a Demat and trading account, which you can open effectively with 5Paisa, to trade in gold ETFs. Then, follow the below process to invest in gold ETF funds:
- Login to your 5Paisa Account. If you do not have an account, you can register with 5Paisa to create a new one in 3 easy steps!
- Once you have logged in to your account, search for your preferred gold ETF scheme or explore "All Mutual Funds" to find the best gold ETF in India.
- Select the best gold ETF in India according to your criteria.
- On the fund page, you can read all the additional information about the gold ETF, such as the underlying index, debt securities, fund managers, asset allocation etc.
- Select the investment type - SIP or Lumpsum for the gold ETF you have chosen.
- Proceed with Payment. Once you have completed the payment, you will receive a confirmation text and email from 5Paisa confirming that you have successfully invested in the chosen gold ETF.
Frequently Asked Questions
ETFs are of five types: Equity ETFs, Debt ETFs, Gold ETFs, Currency ETFs, Silver ETFs and Commodity ETFs.
Yes, ETFs can provide immense diversification and good profits based on the price appreciation of the underlying assets.
You can buy gold ETFs in India, similar to the process of buying shares. Login to your 5Paisa account, search for the gold ETF you want to buy and place an order.
Gold Mutual Funds pool investors’ money to invest in gold ETFs while gold ETFs invest in high purity units of gold.
You can sell/redeem your gold ETF units by selling them on the listed stock exchange. You can place a sell order similar to stocks to redeem gold ETFs at a specific price or current domestic gold price.
Yes, you can use gold ETFs as collateral for availing of a secured loan from any financial institution.