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Everything To Know About Gold ETFs


May 9, 2023
Gold ETFs

Identical to an equity mutual fund, a pool of money is collected from investors through an asset management company (AMC) to invest in stocks, but with gold as the fundamental asset.

Next, the AMC allots units to the investors, which one can trade on the exchanges. Moreover, the value of the ETF corresponds with the underlying actual gold price. Hence, it brings the versatility of equity investment to the time-honoured method of investing in gold.

Purchasing gold ETFs is equivalent to buying gold in digital form.

How Gold ETFs Work?

Each unit of a Gold ETF is equivalent to one gram of 99.5% pure gold. Further, this gold remains in bank facilities and is the underlying asset from which the unit’s value derives.

For instance, consider this: if the AMC decides to assign the value of 1 gram of gold to every unit, the cost of each unit will be roughly equivalent to the price of 1 gram of gold. Numerous investment funds allow investors to trade Gold ETFs. Some examples are Kotak Gold ETF, Axis Gold ETF and Nippon India Gold ETF.

Benefits of Investing in Gold ETFs

1. No price variation

Gold ETFs are purchased and sold at the same price, whereas physical gold is subject to price fluctuations. The physical gold market functions at varying prices in various geographic regions. Also, the purchasing and selling rates differ to account for liquidation and other costs associated with physical gold trading.

2. Purity

Because the industry is organised, Gold ETFs are known to be 99.5% purity, the industry standard. Likewise, the tangible gold market lacks the transparency necessary to foster trust in its purity.

3. Liquidity

The ease of selling a product listed and traded on recognised stock exchanges cannot be duplicated by dealing in physical gold in terms of liquidity.

4. No fear of theft

Storing gold in demat form frees the investor from the concerns of physical gold. It also allows investors to save on storing physical gold in a facility.

5. No entry or exit load

Since Gold ETFs are traded on the stock exchange, they do not impose any entry or exit loads.

6. No indirect taxation cost

Physical gold is subject to indirect taxes such as the Goods and Services Tax (GST) at a rate of 3% of both the buying and selling price. Yet you can save these costs on ETFs since ETFs are securities and securities are specifically exempt from GST.

The Steps To Invest In Gold ETFs

There are two ways to invest in Gold exchange-traded funds (ETFs): direct and indirect.

  • Direct Route: A demat account via a stock broker is necessary to purchase gold ETFs directly. After that, one can buy units of gold ETFs directly through stock exchanges, much like shares.
  • Indirect Route: If one does not wish to invest in gold ETFs through the demat option, they may invest in gold funds that engage indirectly in gold ETFs. For instance, the HDFC Gold fund trades in HDFC Gold exchange-traded funds. These are mutual funds. This option is typically preferable by investors who find investing in mutual funds through their app more convenient or understandable.

Final Words

Before investing in gold exchange-traded funds (ETFs), investors comfortable with digital options must understand the liquidity, risk, and duration of investment requirements and weigh the pros and cons.

 Moreover, diversifying your portfolio is of utmost importance, and investing in gold can help you achieve this goal if you conduct thorough research and understand the market.

If you are searching for gold buyers in central Delhi to sell your physical gold and earn extra cash, then we can help you. We are a reputable gold buyer in South Delhi, and the professionals here can assist you in getting cash for gold coins, jewellery, and bars. Visit any of the nearest branches and get cash against gold.

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