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What you should know about Investing in Gold ETFs

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Investing in gold is an age old tradition in India; we have been buying in gold bars, coins and jewellery for centuries. But how much do we really know about it? Why do people go for investing in gold in the first place? With stocks you will be getting a slice of a company’s shares, with bonds you will get paid a certain interest over time. When you invest in gold, however, the value is decided by demand and supply.

Unlike the traditional gold buyer, those who invest in gold ETFs wants to invest in gold but at the same time want to buy and sell electronically, save storage costs and basically have a safer and more transparent way of investing.

What is Gold ETFs?

Gold ETFs (Gold Exchange Traded Funds) are investment products that are both as flexible as stock investment and as simple as gold investments. Much like any other company stock, the trade happens on the cash market of the National Stock Exchange. In addition, it can be bought and sold at market prices. (Gold ETFs includes a brokerage cost that is not mentioned in expense ratio. This amount will be subtracted from the invested amount).

Why should you invest in Gold ETFs?

Basically Gold ETFs involve buying gold in an electronic form. The returns that you get with gold ETFs is very similar to the returns that domestic physical gold price provides. Gold ETF can be bought and sold like stocks. The result is that you will be getting a dematerialised unit that is backed by physical gold. The prices are in real time and transparent. Gold ETFs can be bought in small lots. Your portfolio can grow faster if you trade on exchanges.

Another pro about investing in gold ETF is the convenience. It is more liquid than other options like gold bonds. Since the gold involved is not in physical form, a certain level of safety is assured. Managing your investment can be done right from your home.

If you are looking to diversify your gold investments,  SIPs for Gold ETFs are an excellent way to start. It is also a great way to discipline yourself regarding investments. If you are looking at a long term investment also it is a great idea since they are basically a dematerialised form of gold. It is also noteworthy to mention that it is more tax efficient when compared to physical gold.

Since jeweller premium and making charges are not paid, as it is with physical gold, the exact amount for your gold will be received as per market price without wastage. If you are thinking about purchasing gold as an investment or for the weddings of your children, it is advisable not to gold as jewellery because you will lose out on making charges (around 10 – 20 %). In addition, you will lose out on the cost of storing the jewellery for a long period. There is also the risk involved while storing jewellery.

Remember, you must always examine gold ETFs carefully before investing. Ensure that you choose an ETF with a low expense ratio and make sure that you don’t assign too much of it in your complete investment portfolio. Only go for it if you are debt free and have already linked all your financial goals to your other investments.  It is Possible to Avail a Personal Loan (like Qbera) to buy gold, however it is not advisable to do so since the returns are slow to come by and you will have to pay a lot of interest when you avail a personal loan. Thus it wouldnt be worthwhile.

Gold ETF schemes in India

Since gold ETFs started trading in Indian stock exchanges, many financial firms have started offering gold ETF schemes. The invested money from investors are open-ended mutual fund schemes in standard gold bullion of 99.5% purity.

Following are some of the 13 gold ETF schemes that are available in India:

  • Goldman Sachs Gold ETF
  • Birla Sun Life Gold ETF
  • Religare Invesco Gold ETF
  • SBI Gold ETF
  • Axis Gold ETF
  • Can Gold ETF
  • Kotak Gold ETF
  • ICICI Prudential Gold ETF
  • R*Shares Gold ETF
  • UTI Gold ETF
  • Quantum Gold Fund
  • IDBI Gold ETF
  • HDFC Gold ETF

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