Top Gold ETFs To Invest

Gold prices after phenomenal gains of over 20 percent during the last year have been retreating lower since the beginning of 2021 owing to gains in the US treasury yield which led the dollar higher as more people flocked to the greenback to buy those bonds. Notably, after the first month of the April quarter has been good for gold with the precious metal climbing above $1770 levels, a number of uncertainties continue to remain.

Now factors that still show there is upside left in gold

1. Vaccination against Covid 19 is still at a very pace

2. Covid 19 second wave is India has been very intense

3. It cannot be said whether the US stimulus aid released shall be sufficient to support the economy which for the first quarter reported a GDP number of 6.4 percent that is indeed encouraging.

4. New mutants continue to disrupt global economic recovery

5. Easy monetary policy continues and this has favoured the appeal for gold.

6. World's largest economy, the US has since the start of the year 2021 has released $6 trillion into the economy and there shall be continued spending in an unabated way and hence there is a threat of inflation. Gold serves as a hedge against inflation.

7. Geopolitical unrest between the US and Russia as the US imposed sanctions on Russia for unnecessary interfering in the US elections of 2020

8. Gold demand has seen a rise in the first quarter in India owing to softening of prices and pent up demand, this also initially led to a surge in gold prices.

Now for these and several other factors, there is still room for upside in gold prices which are considered to have bottomed out for now and are headed for recovery. And so, there is anticipated gains for gold going ahead in the near to medium term.

Why Gold ETFs and How do they work?

Gold ETF tracks the price of domestic physical gold and invests in 99.5% purity gold bullion. This is digital form of gold investment and when you buy a unit of gold ETF, you invest in 1 gm of gold that is backed by gold of very high purity.

You can buy and sell these similar to stocks as these are listed on stock exchanges. So, investment into gold can be made through simple means and offers stock market related flexibility.

Also, because of no making charges and other such expenses, cost pertaining to investment into Gold ETF is also very low than physical gold.

Further the investment into gold ETF is free from any threat of loss as the ETFs are stored in demat form.

How to invest in Gold ETFs?

Similar to stocks these are traded on exchanges and can be bought at market rates. This is actually very close to the actual price of gold, and therefore, the benchmark is the physical gold price. So, for you to invest in Gold ETF, there has to be a demat and trading account. You can also go the lump-sum way or invest systematically via SIPs.

Cost associated with Gold ETFs

1. Expense ratio i.e. very small

2. Broker associated cost every time you transact in an ETF

3. Tracking error that is related to fund's expenses and cash holdings.

How to choose the right Gold ETF?

For arriving at the best Gold ETF, trading volume and tracking error should be monitored as with benchmark as domestic physical gold price, performance of all the Gold ETFs shall be more or less same.

Best Gold ETFs to invest in

1. Nippon India ETF Gold BeES:

The ETF commands a good trading volume of over 23 lakhs meaning offering high liquidity. And has a 14-year track record. The fund though is not rated.

Gold ETF	1-year return	3-year	5-year
Nippon India ETF Gold BeES	-0.64%	13.76%	7.79%

Positives of the Nippon India ETF Gold BeES are its asset size of Rs. 5277 crore as well as its high 20 day average volume of 4,805,409. Expense ratio of the fund is 0.82 percent. The fund is said to carry a moderately high risk.

Among peers, this ETF has the lowest tracking error which means its portfolio is closely following its underlying.

2. HDFC Gold ETF

This is another unranked fund and has an asset size of Rs. 2123.39 crore. Expense ratio of the fund is 0.62 percent. Against its Nifty 50 benchmark, the fund in the past one year has given negative return of 0.75%.

Gold ETF	1-year return	3-year	5-year
HDFC Gold ETF	-0.75%	13.56%	7.87%

This is an open ended fund wherein one can invest any time. Notably during the period from May 2019 and May 2020, the ETF posted the best performance with return of 49.76 percent. It is a dividend paying ETF but for the last several years has not paid any dividends. 

3. Kotak Gold ETF:

This is also not rated and commands an asset size of Rs. 1539 crore. Expense ratio of the fund is 0.55%. The fund aims to provide returns that closely correspond to the return provided by the price of gold through investment in physical gold in domestic market.

Gold ETF	1-year return	3-year	5-year
Kotak Gold ETF	-0.72%	13.82%	7.77%

Taxation of Gold ETFs:

If gold ETFs are held for over 36 months then long term capital gains tax at 20 percent with indexation benefit applies. Short-term capital gains (STCG) tax is imposed at the investor's income-tax slab rate if gains on units are held for less than 36 months.

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