Since then, gold has been performing quite well and is one of the favourite investment options till now. It is the only investment which acts as hedge against inflation and economic instability.
(To know more about Gold ETFs, click here)
There are many ways to invest in gold but Gold Exchange Traded Fund is one of the easiest routes to invest in gold without holding physical gold. Investing in Gold ETF is similar to investing in stocks. Like stocks, Gold ETFs are also listed on stock exchanges. They are held in demat form just like the stocks.
Minimum trading lot for most of gold ETFs in the market is one unit. Value of units varies from fund to fund. For example, in case of Gold Benchmark Exchange Traded Fund, each unit corresponds to one gram of gold and in case of Quantum Gold Exchange Traded Fund, each unit corresponds to 0.5 grams of gold.
It implies the minimum amount required to invest in gold ETFs weighing 1 gram is approximately Rs 2,265 based on current price of gold.
As ETF is like a stock which trades on an exchange, so you need to have a demat account and a trading account with any brokerage house who is member of NSE or BSE.
After opening an account, you can choose a gold ETF and place the order with the broker. Your purchase order will match with the sell order with the medium of exchange and units will get transferred into your account. In case of New Fund Offer (NFO), you will be provided with the units from the fund house and once the ETF gets listed on an exchange you can trade the same.
Gold ETFs in India
Currently, there are many Gold ETFs traded in India. Some of the listed Gold ETFs are Gold Benchmark ETF - GoldBees, UTI Gold ETF – GoldShare, Kotak Gold ETF – KotakGold, Reliance Gold ETF – RelGold, SBI Gold ETF – SBIGETS, etc.
Points to consider while selecting Gold ETF:
Returns: As Gold ETFs are passively managed funds, they closely track the performance and yield of gold in spot market so the returns they provide are more or less the same. The slight difference which appears in returns is due to tracking error which happens when fund fails to track the price of gold accurately.
Expense Ratio: Investors must choose a fund which has a lower expense ratio. Higher expenses translate into lower returns for investors. Currently, the expense ratio is ranging from 1% to 2.5%.
Tax Implications: Tax implications on Gold ETFs are same as those debt mutual funds. If ETFs are held for less than one year, the gains attract short term capital gains tax and long term capital gains tax in case if the period of holding is more than a year. Long-term capital gains are taxed at 20% (after allowing for indexation benefit) or 10% (without indexation benefit), whichever is less.