Introduction :

Discover the ins and outs of Gold ETFs – an investment vehicle that provides exposure to gold without the hassle of physical ownership. Learn about the benefits, risks, and how to invest in Gold ETFs to diversify your portfolio and potentially capitalise on the price movements of gold.

More on Gold ETFs:

An exchange-traded fund called a gold ETF serves as a physical gold alternative. Every investor is aware of how difficult and risky it may be to invest in actual gold. You can maintain your investment in gold without actually owning any physical metal thanks to gold ETFs. The sole underlying asset of a gold ETF, a type of commodity exchange-traded fund, is gold. One gram of gold is equal to one gold ETF unit.

Investing in Gold ETFs entails buying gold electronically. When you redeem a Gold ETF, you receive its cash equivalent instead of the gold equivalent.

The holdings of a Gold ETF are completely transparent. Furthermore, the ETFs have significantly reduced costs compared to real gold investments because of their distinct structure and creation method.

Purity, Price and Risks of Gold ETFs:

99.5% pure gold bars are used to represent gold ETFs. Gold ETF prices are available to buy or sell at any time through a stock broker and are displayed on the BSE/NSE website.

The taxes imposed on the acquisition or sale of actual gold are comparable to those imposed on gold ETFs. If an investor trades these money and profits, capital gains tax will be due. Both short-term and long-term investments in these trading funds are subject to taxes.

An investor will be responsible for paying a 20% capital gains tax in this scenario, as well as any necessary indexations. Exchange-traded funds will be subject to capital gains tax for short-term investments, according to the individual’s existing tax bracket.

Market risks that affect the price of gold are present for gold ETFs. The SEBI Mutual Funds Rules apply to gold ETFs. A statutory auditor must regularly audit the physical gold that fund houses purchase.

Gold ETFs vs Gold Bars vs Gold Jewelry

Transaction ChargesJewelleryGold BarsGold ETFs
PurchaseMaking charges of 15-20 %10-20 % mark up charges by banksBrokerage of 0.5% or even less
Sell10-20 % is lost due to purity issuesBanks do not take it back, so premium paid at time of purchase is written offBrokerage of 0.5% or even less
MaintenanceInsurance charges and locker charges (if you put in locker)Insurance charges and locker charges (if you put in locker)1.00%
Tax ImplicationsLong term capital gain, but after 3 years, plus wealth taxLong term capital gain, but after 3 years, plus wealth taxLong term capital tax

Who should invest in Gold ETFs?

For individuals who want to invest in gold but do not want to do so in physical gold due to storage issues or uncertainty about the purity of gold and also want to receive tax advantages, gold ETFs are perfect. As there is no premium or making fee, investors could save money if they make a substantial investment. Moreover, one can buy as few as one unit (which is 1 gram).

Distinct Advantages

  • Each unit is backed by high purity physical gold to ensure the quality of the gold, which is guaranteed.
  • Real-time and Transparent gold pricing.
  • Traded and listed on a stock exchange.
  • Gold Investments are tax-efficient. The income derived from it is considered long-term capital gain.
  • No wealth tax, security transaction tax, sales tax, or value-added tax
  • No need to worry about theft because the units are kept in a digital demat account. 
  • ETFs are accepted as loan collateral.

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