In India, we have a very deep-rooted relationship with gold that goes beyond its mere ornamental value. Gold is looked upon as something valuable which you can fall back on, god forbid life takes an awry turn. If the recent spur of volatility in the stock market is keeping you from venturing into equity, you can opt to strengthen the long-term classification of your portfolio by investing in gold.
Traditional investing in gold however comes with a lot of costs such as high making charges of jewellers as well as additional secure storage costs for physical gold. This coupled with the stress of maintaining a physical stock of gold, can make investors wary of investing in gold.
There could however be a better way in which you can take advantage of the potential of gold without the added costs and stress of holding it – ‘Gold Exchange Traded funds’
What is a gold exchange traded fund (Gold ETF)?
An exchange traded fund is an investment fund which pools resources from investors and invests as per its investment strategy and objective. It is traded on the stock exchange like any other stock. A Gold ETF is a commodity-based exchange traded fund which has physical gold as the underlying asset in its investment pool. This gold is held on your behalf by an appointed custodian for the ETF.
Gold ETFs are available for trade on the National Stock Exchange (NSE)/ Bombay Stock Exchange (BSE). To invest in them, an investor needs to have a demat account along with a share trading account through which he/she can buy and sell units of Gold ETFs on the NSE/BSE just like normal stocks on a real-time basis.
Why gold ETF?
Cost – the cost of buying and holding units of Gold ETFs is lower than that of actual gold as it saves on making charges which is levied on actual gold
security – Gold ETFs are in electronic format and you do not need to worry about its safety like you would need to in case of storing actual gold
Low minimums – Gold ETFs can be traded in as little as one unit (This makes it a viable option for investing in gold even with significantly low investable capital.
Ease of liquidity – Gold ETFs are like any other listed mutual funds which can be easily traded on the stock exchange. The need for visiting jewellers, verifying their authenticity and testing the purity of gold is eliminated.
Price parity – Trading of gold often occurs at varied prices, differing not only from location to location but even from jeweller to jeweller. Gold ETFs eliminate these differences as units bought and sold from any physical location will cost the same.
Now, let’s look at the Gold ETF offered by Aditya Birla Sun Life Mutual Fund more closely:
Aditya Birla Sun Life Gold ETF is an open ended scheme tracking physical price of Gold. Its main objective is to generate returns that are in line with the performance of gold, subject to tracking errors. A significant portion of corpus of this scheme will be invested in physical gold of 99.5% purity (fineness).
This fund seeks to provide investors a simpler way to invest in gold and aims benefit from its growth potential minus the hassles.
Is it for you?
The resilience of gold in times of rising inflation and volatile markets has made gold to be recognised as a Global asset class. Yet it’s an oft ignored investment category. If you are looking to invest in gold as avenue to diversify and strengthen your existing portfolio, then Gold ETFs could be a good option for you.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.