Gold is seeing correction for now and this is said to be only momentary as the broader outlook is still hazy both at macro-economic level and on geo-political front. And in such uncertain times, when the government pushes for more of stimulus measures and have dovish stance, gold tends to gain.
And as we know higher prices of the yellow metal which at one time scaled to Rs. 56200 per 10 gm in the futures market has dented demand in the retail market. There has been seen a push for investment drive sale in gold market. Implying investor interest is now more drawn to Gold ETFs as well as SGBs which as per the RBI and AMFI data have seen a record investment worth Rs. 14000 crore into SGBs and gold ETFs together in the H1FY21.
So, if you given the traction in gold investments and likely upside in the metal in the near future wish to take on to Gold ETFs. Also from a 1-year perspective gold despite the current correction has been yielding a stupendous 31%.
Here is all you need to note:
Gold ETFs as per experts are considered far better in investment as the manager pools in investors' money and the cost associated with different elements into buying gold ETF with underlying as gold can be optimized and hence there can be generated income on it.
1. Gold ETFs carry market risk and also need to abide by SEBI guided regulations:
You need to make sure that Gold ETFs which are represented by 99.5% pure physical gold undergoes the statutory audit i.e. mandated as per law.
2. Expense ratio:
Gold ETFs are managed by fund managers who charge brokerage and hence you need to hunt for fund houses that charge a lesser amount in comparison. And with limited gains on the metal as in the normal case, higher expenses would lower your return from Gold ETF investment by similar proportion.Usually brokerage charges between 0.5-1 percent.
3. Also, not low-cost should only be a criteria for you to make investment into a particular gold ETF:
You need to herein evaluate the performance of gold ETF for the last few years to analyse its likely performance over the course of investment.
4. Opt for gold ETF whose average trading volume is on the higher side:
This can be made known through the financial website as well as exchange portal's and if volume happens to be low for a product then you may need to keep the selling price as low and because of that you may incur a loss on your gold ETF investment. Herein with volume there is another factor associated i.e. of impact costs and so go in for ETF investment which entails lower impact costs.
5. Opt for gold ETF with lower tracking error:
NAV of the gold ETF should be reflective of the market rate of gold and if the tracking error shows a higher variation then such a gold ETF should be avoided.
6. Don’t go for heavy scale investment into gold ETF:
Gold in a longer tenure are reaping an annual return of just 10%. A 5-15% allocation would be just fine to provide cushion to your investments against investment risks from other investment avenues as well as maintain your returns as stable.