Gold is one of the most important investment assets in India. Over a long period, gold is supposed to retain its purchasing power and is, therefore, seen as one of the safest assets in our country.
For Indians, the two most popular forms of gold investments in India are buying gold jewellery or buying gold bars and/or gold coins. While buying gold jewellery is the traditional form of gold purchase, it involves making charges and risk of impurities. Many families start buying gold jewellery for their daughter’s wedding from a young age. However, by the time the girl child will reach marriageable age, fashion trends are likely to change and the parents may have to remake the jewellery for the wedding.
What is the Gold ETF?
Gold ETF is an exchange-traded fund (ETF) that aims to track the price of gold in the market and has the same value of pure 24-carat physical gold. The units of the Gold ETFs are traded on the stock exchange (NSE and BSE) just like listed shares of any company. However, to buy and sell gold ETFs on the stock exchange, you need to have a Demat and trading account with a stockbroker, and if you do not have a Demat and share trading account, then you can invest in a Mutual fund Gold fund of funds. Gold fund funds are mutual fund schemes that invest in Gold ETFs and are just like any other open-ended mutual fund scheme.
The problem with remaking gold jewellery
When you remake a piece of jewellery or melt your jewellery to get a new design, the jeweller considers only the weight of gold to value the total price and no consideration is given to the making charge that you paid earlier. Further, most of the jewellers deduct the impurities from the value of gold as it invariably contains impurities. For the new jewellery, the jeweller will price the making charge which is based on the weight of the gold and the cost of gold; he will adjust the value of the old gold minus impurities from the price. So, if you remake gold jewellery, you will have to pay to make charges twice and also pay for impurities. Therefore, purely from an investment standpoint, buying gold jewellery is not a prudent investment decision.
The dilemma with investing in gold bars
Gold in the form of bars and coins is more suitable for investment purposes because they do not contain impurities and no making charges are involved. However, buying gold in physical form involves the cost of storage and also the risk of theft. To avoid the risk of theft, you may prefer to keep the physical gold in bank lockers but for which you have to pay annual locker charges to the bank.
Why Gold ETF?
Since Gold ETFs have the same value as pure physical gold and there is no associated cost such as making charges or impurities, so when you sell the Gold ETF you get the value of pure gold.
The units of gold ETFs get credited to your Demat account and thus there are neither any storage costs involved nor the risk of theft. Gold ETFs are the cheapest and safest way of investing in gold as an investment option.
People Often Ask
- What is a gold ETF and how does it work?
An exchange-traded fund to track the price of gold in the domestic market is called Gold-ETF. It is a passive investment instrument based on gold prices. - Which is the best gold ETF?
The best gold ETF to invest in India are
- Nippon Gold ETF
- SBI Gold ETF
- UTI Gold ETF
- Kotak Gold ETF
- Are gold ETFs a good investment?
Yes, Investing in gold-backed ETFs provides liquid and cost-effective access to gain exposure to the precious yellow metal. Having gold in your portfolio can significantly reduce how much you lose when markets are falling. - Is it better to buy physical gold or ETF?
It is better to buy Gold-ETF as it can easily be traded and stored. Moreover, one doesn’t need to worry about thefts. - Do gold ETFs pay dividends?
No, only equity-based gold ETF pays a dividend, Gold ETFs that hold the physical precious metal or that hold gold futures contracts do not offer dividend yields.
Conclusion
Investing in Gold-ETF is a wise decision one can take, rather than investing in the physical form of gold. An investment in gold-ETF can prove to be fruitful when there are fluctuations in the market.