Gold ETFs are passive investments that track the domestic price of gold. Compare returns and find best gold etfs to invest in India.
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Gold is among the most desired assets in India. Gold is useful for consumption in the form of jewellery and also is an asset that helps in hedging inflation and currency risk. It also diversifies an investment portfolio. There are multiple ways one can invest in gold. For the purpose of investment, physical gold can be quite risky as it is prone to theft and involves storage and carrying costs. Hence Gold ETFs are the perfect alternative to this.
Gold ETFs or Gold Exchange Traded Funds are passive investments that track the domestic price of gold. They invest in gold bullion. They are the dematerialized forms of physical gold. One gold ETF scheme unit equals one gram of gold, and this unit is backed by physical gold of 99.5% purity.
Through this scheme, one can invest in gold as well as participate in the market as these are traded on stock exchanges both domestically and globally. Hence one can buy and sell them on NSE and BSE like any other listed stock. Also, they are listed under the cash segment of the exchanges and are bought and sold at market prices.
The purchase and sale of these mutual funds happen in terms of cash and not gold. Also, the trading takes place through a demat and trading account, making it convenient to transact in gold. Furthermore, this ensures complete transparency in trading in gold.
Since gold is stored in a dematerialized format, there is no risk of theft. Moreover, there are no storage and carrying costs. Also, returns from Gold ETFs are treated as capital gains and taxed accordingly. Hence are more tax-efficient than buying physical gold. They act as a perfect hedge against inflation and currency risk. Moreover, they also help in diversifying an investment portfolio by spreading the risk.
Gold ETFs invest in physical gold bars that are of 99.5% purity. These ETFs can be bought and sold anytime on the stock exchange. The prices of gold ETFs are the same across India, unlike the price of gold bars and biscuits that vary with geographies. With a Demat and Trading account, an individual can easily purchase them on BSE or NSE. Furthermore, these ETFs attract fund management fees and broker charges.
It is better to invest in these schemes as they are backed by physical gold, and the investor can enjoy the benefit of the change in gold prices instead of buying physical gold. Also, an investor can liquidate their investments at the market price of the gold. Moreover, Asset Management Companies (AMC) also allow investors to redeem Gold ETFs in unit form. In other words, if an investor holds Gold ETFs equivalent to 1kg gold, or in multiples thereof, they can redeem the investment in physical gold form.
Following are the differences between the Gold ETF and physical gold.
|Basis of Difference||Gold ETF||Physical Gold|
|Meaning||Gold ETFs are backed by physical gold of the highest purity (99.5%). They are in demat form.||An investor buys gold in physical form for investment or consumption.|
|Purpose||The purchase happens for investment purposes.||The purchase happens mostly for consumption purposes.|
|Pricing||They are uniformly priced as per international standards.||The physical gold prices vary from dealer to dealer.|
|Storage||No need to store the gold in physical form. These ETFs are stored in demat form. Hence no risk of theft and no additional storage costs.||Physical gold is stored in lockers and has carrying costs and storage costs. There is also a high risk of theft.|
|Minimum investment||The minimum investment is one gram.||Gold bars and biscuits of 10 grams are available for investment purposes. However, one can buy one gram of gold as well.|
|Charges and wealth tax||ETFs’ expense ratio is capped at 1% and a few additional charges for transaction and brokerage. No wealth tax is levied.||Gold has making charges. A wealth tax is also levied if the value exceeds INR 30 lakhs.|
|Liquidity||These ETFs are very liquid as they are traded on the stock exchange.||Gold can be purchased from banks and jewellers but can be exchanged with only jewellers.|
|Requirement of demat account||Demat account is needed.||Demat account is not needed.|
To invest in a Gold ETF fund, one has to open a trading and demat account. The account can be easily opened by providing details such as ID proof, address proof and PAN card. With the trading and demat account, the investor can invest in the chosen ETF. One unit of the gold ETF scheme is equal to one gram of physical gold.
The purchase confirmation of the Exchange Traded Fund will be sent to the registered mobile number and email id. Also, a nominal brokerage is deducted for the transaction.
Gold ETFs are ideal for investors who are looking to diversify their investment portfolio. Moreover, they suit investors who want exposure to gold and also want to participate in the market. Since Gold ETFs are backed by the gold of 99.5% purity, they are low-risk investments. Hence, they suit investors who are looking for low-risk investments.
Gold ETFs reduce the risk and costs of storing gold. Moreover, they are more tax-efficient than physical gold. Hence investors who want to invest in gold with the sole purpose of earning a return and reducing taxes can consider investing in Gold ETFs. Gold ETFs track the prices of gold in real-time. Hence investors who want to track their investments on a real-time basis can consider investing in Gold ETFs..
One can sell or redeem their investment in Gold ETFs through the stock exchange. They need to have a trading and demat account for performing such transactions. These schemes are backed by physical gold of high purity and are hence used as a tool to benefit from the gold price fluctuations. When one sells their investment, they get paid in INR equivalent to the price of the gold. In other words, the Gold ETF price is the same as the price of physical gold. However, AMCs permit redemption in the form of gold units. However, the scheme’s minimum value should be equivalent to 1 kg of gold and in multiples thereof.
Having Gold EFTs is a tax-efficient way to hold gold. They do not attract any wealth tax, or security transaction tax, or GST or wealth tax. Returns from Gold ETFs are taxable as per the investor’s income tax slab rate when the holding period is less than 3 years. For investments with a holding period of more than 3 years (long term capital gains), the income/ gain is taxable at 20.8% (including cess) with indexation benefits.
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