Gold Exchange Traded Funds popularly know as Gold ETFs are mutual funds which are listed on Stock Exchanges like BSE and NSE, where you can buy and sell them.
Buying Gold ETF means you are buying gold in an electronic form. Gold ETFs are also available in small denominations, and can be kept in the Demat account.
Here are 5 smart things to know before investing
1) How to Buy?
Individuals can buy gold ETF through a trading and Demat account. These are also liquid funds as they can be bought and sold during the market hours.
If the holding period of Gold ETF is more than three years it is considered as long term if you have sold after that period. Gold Exchange Traded Funds attract short-term capital gains as per the income tax slab.
These are mutual fund units that represent actual gold of 99.5 per cent purity. So, they can be converted to physical gold. 1 ETF is equal to 1gm of spot gold.
There is no securities transaction tax, entry load or exit load applicable. There is a fund management fee of 1 per cent is charged by AMC. Since the expenses incurred to run Gold ETFs are accrued by selling some gold holdings. So the NAV prices are adjusted to expenses incurred.
Your AMC will allow you to redeem your ETFs into physical gold as long as you hold 1 kg of gold in ETF form. Retail investors can redeem their gold Etf against cash and not physical gold.
Individuals who are looking to invest in Gold ETF should remember that Gold ETFs track gold prices and hence you must have a good understanding of the gold market before buying.
In the last one year, for example, Gold ETFs have given negative returns, while the Sensex has given positive returns.