Gold Exchange Traded Funds

Features of Investment in Gold ETF

Exchange Traded Funds (ETFs) are open ended mutual funds that are passively managed and most of them seek to mirror the return of an index, a commodity or a basket of assets. ETFs are listed and traded on stock exchanges like stocks. They enable investors to gain broad exposure to indices or defined underlying asset (commodity) with relative case, on a real-time basis, and at a lower cost than many other forms of investing.

Gold ETFs provided investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that participation through the trading of a security on stock exchange. Gold ETF would be a passive investment; so, when gold prices move up, the ETF appreciates and when gold prices move down, the ETF loses value.

Gold ETF tracks the performance of Gold Bullion. Gold ETFs provide returns that, before expenses, closely correspond to the returns provided by physical Gold. Each unit is approximately equal to the price of 1 gram of Gold. But, there are Gold ETFs which also provide a unit which is approximately equal to the price of ½ gram of Gold.

Why should an investor invest in Gold ETF?

• No worry on adulteration
• Gold provides diversification to the portfolio
• Gold is considered as a Global Asset Class
• Gold is used as a Hedge against Inflation
• Gold is considered to be less volatile compared to equities
• Held in Electronic Form
• Store of value
• Extremely Liquid

Advantages of Investing in Gold ETFs

• Potentially cheaper to have price exposure to gold price as compared to other available avenues
• Quick and convenient dealing through demat account
•  No storage and security issue for investors
•  Transparent pricing
•  Taxation of Mutual Fund
•  Can be traded on stock exchange like buying / selling a stock
•  Ideal for retail investor as minimum lot size to trade is one unit on secondary market
•   NAV of a unit will track price of approximately ½ or 1 gram of gold