Gold ETFs (Exchange Traded Funds) are yet to gain popularity in a country like India, where gold in the form of jewellery is still coveted. Gold ETF funds are a great way to invest in gold and complement your portfolio. The virtual form of Gold enables one to hold Gold without fearing theft or worrying about safeguarding the same. Conventional gold in the form of jewellery has making charges which makes it unattractive compared to virtual gold, as they do not attract any such making charges. Here’s all you need to know about choosing the best gold ETF:

What are Gold ETFs?

Gold ETFs are an investment fund similar to mutual funds that pool money from investors and in turn invest as per the predetermined mandate mentioned in the scheme details. Unlike a regular mutual fund, ETFs are traded like stocks in the stock exchange and hence, their name. The Gold ETFs in India are traded on the National Stock Exchange (NSE)/Bombay Stock Exchange (BSE). A Gold ETF is a commodity-based ETF that has Gold as its underlying asset. The Gold is held on behalf of the investor by the appointed custodian in Gold ETFs.

How to invest in Gold ETFs?

An investor requires a demat account alongside a share trading account to be able to buy/sell units of Gold ETFs, they are traded on a real-time basis just as stocks are. The procedure invest in Gold ETFs is similar to that of equity shares, the step-by-step process is as mentioned below:

• Log into your Demat Account

• Go through all the options of Gold ETF options and then choose the ETF that is aligned to your requirement

• Then you need to opt for the same

• After your order is successfully place, you need to authorise the payment through the bank account that is linked to your trading account

• The allocated Gold ETF units would be duly credited to your name. You can track them on your demat account.

Features of Gold ETFs:

• Flexibility:

  The entry and exit into Gold ETFs is not restricted by any means, it works exactly like that of stocks. Further, holding Gold ETFs is equivalent to holding physical gold as the Gold ETFs invest in the purest form of Gold.

• Liquidity:

  Gold ETFs offer greater liquidity as compared to that of physical gold, they are traded in the exchange and can be bought and sold as per the prevailing price, the price of Gold ETFs closely follows physical gold. The transactional cost in the form of broker fee, government duty etc., tend to be lower than that of physical gold.

• Smaller denominations:

  Purchase of physical Gold in any form, including that of jewellery would require a huge outlay of funds. Under Gold ETFs, the minimum investment is 1 gram of gold at the prevailing price of gold.

• Price

  When we buy physical gold, the location at which you initiate the purchase would determine the per unit of gold purchased. This price parity of physical location does not exist when the units are bought and sold in the Gold ETF format. The price is universal irrespective of where the transaction is initiated from.

Why should you consider Gold ETF investment?

Gold ETF investment not only offers the benefit of lower cost, minimum investable capital, better liquidity and no price parity, it also offers optimal security as one need not worry about the possibility of theft. There is no incurrence of additional costs such as making charges and locker fee for safety of the asset. It also is a great hedge against inflation and works well during turbulent times in the market. It is often used as an added flavour of diversification which reduces the overall risk of the portfolio substantially.

Gold ETF returns and risks

The returns of Gold ETF investment is aligned to the gold prices, the asset class is called the store of value or safe haven. The returns may be moderate and consistent over the long haul. The prices of gold do not fluctuate as frequently as compared to that of equity markets. From a risk profile perspective, it is suitable for people with a low – moderate risk profile.

The above note about ETFs should provide you with ample knowledge to undertake informed decisions.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.