Investment instrument: Know about Gold ETF


Over a period of time, Gold Exchange Traded Funds (ETFs) are becoming more and more popular among the gold investors all over the world. The author discusses Gold ETF and its various advantages in this article. Read to know the details.

People all over the world, especially the people of India, have an irresistible attraction towards gold. Many upper-class and middle-class people of India perceive and follow gold as an important investment vehicle for future. They go on purchasing gold to secure their own and their children's future.

But the physical form of gold creates various types of problem. Safety and security of gold is the most prime concern. Keeping gold in lockers is a very costly affair. Further, purity of the gold purchases is another area of concern. Finally, selling of gold at the time of necessity is not very easy. Many people don't get the full price of gold at the time of selling.

So, more and more people are getting interested in the paper form of gold instead of investing in physical gold. In this article, we are going to discuss Gold ETF, an important form of paper gold.



What is Gold ETF

Gold ETF (Exchange Traded Fund) is a form of paper gold. Gold ETFs are open-ended mutual fund schemes. In our country, these are monitored by Securities Exchange Board of India (SEBI). Gold ETFs invest in gold bullion of purity of 99.5% after collecting money from the investors. A negligible amount is also kept as cash and as bond. The combined value of these assets divided by the number of units gives the NAV of the Gold ETF. As the ETFs have some expenses, these are adjusted from the invested amount. So, the value of 1 unit of a Gold ETF is very marginally less than the price of physical gold.

How to purchase Gold ETF

All types of investors, both retail investors and institutional investors, can invest in Gold ETF. The requirement for the investor is very simple. An investor must have a Demat Account in his/her name for investment in Gold ETF. An investor must have to purchase at least 1 unit of ETF at one go. There is no upper limit for purchase.

Taxation of Gold ETF

This is an important aspect for the investors. In India, Gold ETFs are taxed like other Debt Mutual Funds. This means that short-term capital gain accrued within three years of investment is added to the taxable income of the investor. Long-term capital gains accrued after three years of investment get indexation benefit.

Why should an investor invest in Gold ETF?

The investors must know the precise reasons for investing in Gold ETF. The first and foremost benefit of investment in Gold ETF is safety. It is paper gold and there is no physical component. This is held in Demat Account. So, there is absolutely no problem of safety and security of the investment, which is always a concern in case of investment in physical gold. Further, the investor doesn't have to pay locker charge (which has been increasing every year). The expense associated with the Gold ETF is negligible compared to the locker charge. From the point of view of liquidity, Gold ETF has a distinct advantage over physical gold. Gold ETF can be sold anytime. The physical gold purchased by the investors may not be of the highest purity, but the Gold ETF purchases 99.5% pure gold. From the taxation point of view also, the long-term investors in Gold ETF get the benefit of indexation.



Final few words

Considering the aforestated benefits, the gold investors have been increasingly shifting towards Gold ETF instead of physical gold. However, new investors are advised to check the returns of different other investment instruments like ELSS, Equity Mutual Funds, Debt Mutual Funds and Fixed Deposits, Corporate Bonds and Annuity, etc., before taking the final call.


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