After phenomenal gains in the previous year i.e. 2020 owing to lot of uncertainties in the world to the tune of 28% from gold, you may expect gains to come in, yes you are right, analysts also expect the precious yellow metal to reap in good return this year too but probably not of the same scale as last year's.
And other than the gains, there is one more reason that you may be pushed to invest in the yellow metal at this point in time, as global central banks are resorting to push liquidity and with there is a threat of inflation. And to beat this inflation risk, gold serves as a good hedge. Of late amid easing of US inflation, there was seen some softness in gold.
So, now it has been over 5 years time, since the government has been promoting financial investment into gold with the introduction of Sovereign gold bonds or SGBs, there is another investment option in gold i.e. Gold ETFs is gaining interest among investors. And after a precise offloading from the investment option, again in the January month, there has been seen record inflows into Gold ETFs as per the data by AMFI. During this time there was correction seen in gold prices, which anticipating better returns, entered into the precious metal.
Gold functions as a strategic asset in an investor's portfolio, given its ability to act as an effective diversifier, and alleviate losses during tough market conditions and economic downturns. This is where it draws its safe-haven appeal, as has been evident since 2019, said Morning Star's Srivastava.
Now here is all that you need to know about Gold ETFs:
If you want high liquidity from your gold investment, you can take on to Gold ETFs which can be purchased if you maintain a demat account. Also, for the convenience of investors, they are also allowed an option to invest in them as SIPs.
Why Gold ETFs ?
At present, personal finance experts when advising gold investment highly recommend SGBs for the interest component besides capital appreciation and other benefits. Nonetheless, what comes into play in the case of Gold ETFs is that it offers high liquidity similar to physical gold and with a longer tenure offers a good return.
Gold ETFs- taxation aspect
The ideal situation or to reap the best from the gold ETFs, investors should ideally hold it for a period of 3 years and more as if held for less than 3 years, it attracts short term capital gains tax implications. While for a period of over 3 years, there arises long term capital gains tax implication. Here we cannot ignore the SGBs that come with an advantage, i.e. proceeds from the investment if held until maturity i.e. 8 years term, there is no capital gains tax liability on it.
Pointers that can optimize your returns from Gold ETFs:
1. Note that the ETF you are investing into is not a small fund with low liquidity: So other than the expense ratio of the Gold ETF, you need to also factor in the fund size. Such that you are offer good liquidity, one of the few important reasons because of which you invested into Gold ETF.
2. Gold ETFs should be purchased at market price: Investors need not place several bids for the instrument and maintain their overall allocation into gold not over 15%.