What are Gold ETF’s?
A gold ETF is an exchange traded fund that tracks the price of domestic physical gold and these are passive instruments for those investors who do not want to get into hassles of physical gold purchases.
Gold ETF’s are units representing physical gold generally in paper or dematerialized form. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold. Gold investment combines the flexibility of stock investment and the simplicity of gold investments.
These ETF’s are listed on the National Stock Exchange ( NSE) and Bombay Stock Exchange ( BSE) like a stock of any company and are traded on the cash segment of NSE and BSE like any other stock can be bought and sold continuously at market prices.
For one to invest in Gold ETF’s , the investor needs to have a demat account so that they can purchase gold in an electronic form. One can buy and sell gold ETF’s in the same way one buys stocks of companies. However, when one redeems a GOLD ETF, they don’t get physical gold, but receive the cash equivalent. This method is a completely transparent way of investing in the gold market.
Why and how should one choose the right Gold ETF’s?
Before getting into how and why of choosing the right GOLD ETF’s one should know about the availability of various ETF’s listed on the exchanges. The top 10 gold ETF’s listed are as follows.
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Gold ETF
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Features
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Axis Gold ETF
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NAV: 51.02 II Expense Ratio: 0.53% II AUM:
₹756.85 Cr
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IDBI Gold Exchange Traded Fund
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NAV: 5485 II Expense Ratio: 0.35% II AUM: ₹95 Cr
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ICICI Prudential Gold ETF
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NAV: 52.24 II Expense Ratio: 0.5% II AUM:
₹3332.52 Cr
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Invesco India Gold ETF
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NAV: 5319 II Expense Ratio: 0.55% II AUM: ₹89.3
Cr
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Kotak Gold ETF
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NAV: 51.01 II Expense Ratio: 0.5% II AUM:
₹2580.36 Cr
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HDFC Gold Exchange Traded Fund
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NAV: 52.22 II Expense Ratio: 0.59% II AUM:
₹3353.55 Cr
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UTI Gold Exchange Traded Fund
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NAV: 50.95 II Expense Ratio: 1.13% II AUM:
₹817.90 Cr
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Aditya Birla Sun Life Gold ETF
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NAV: 52.34 II Expense Ratio: 0.54% II AUM:
₹355.56 Cr
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SBI- ETF Gold
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NAV: 52.23 II Expense Ratio: 0.64% II AUM:
₹2824.08 Cr
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Quantum Gold Fund
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NAV: 50.50 II Expense Ratio: 0.78% II AUM: ₹154.6
Cr
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Data as of 31st January 2023, NAV AS ON 05TH JUNE
2023
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Gold ETF’s are ideal for those investors who want to divest in gold but do not want to invest in physical gold due to storage hassles and also for tax benefits of doing it in digital form. Since there is no premium or making charge in these instruments, investors stand to benefit from this mode of investments. Moreover, one can purchase gold ETF’s as low as 1 gram and then can accumulate as per their needs.
Choosing the right Gold ETF’s
Now we know what is available, the next task is to identify the right ETF’s. As you can see in the chart above, the key role of ETFs in all these investments is to mirror the price of gold. So one is rest assured that the investments in gold ETF is a beneficial way of investing in gold in comparison to other modes of gold investments, because it reflects the price of gold in the physical market. Moreover, choosing the right gold ETF is also a function of how much is the expense ratio of the gold ETF, the lower it is the better for investors as these expenses get deducted from the investor once he redeems his gold investments.
Returns from gold ETFs are in the form of short-term or long-term capital gains. While long-term gains are taxed at 20% (with indexation benefits), short-term gains accumulate to your income and are taxed according to the tax slab rates.
Checking the historical data can give you an idea regarding the fund’s stability and potential. Experts believe a minimum of 3 years’ data of the average returns should be consulted.
Asset liquidity is directly proportional to trading activity. Thus, you need to choose ETFs based on their trade volumes. While some may not experience many fluctuations, others may undergo hourly spikes or drops in price.
Tracking the underlying index is essential before considering an ETF to trade with. Any discrepancy between the fund’s net asset value and the actual value of gold is a tracking error. These errors imply additional fund management charges and other transaction costs. Always choose ETFs with minimum tracking errors.
ETF is one of the ideal ways of investing in gold for those who want to invest in digital mode. Investors should choose the mode of investing depending on the needs and desires of their portfolio.