What is Gold ETF?

Last Updated: 9 Jan 2023

A gold ETF is an exchange-traded fund and a substitute for physical gold. Every investor knows that investing in physical gold can be cumbersome and insecure. This is where gold ETFs help you stay invested in gold, without actually having to own any physical gold. In a gold ETF, which is a commodity exchange-traded fund, the only underlying asset is gold. One gold ETF unit is equivalent to one gram of gold. Gold ETFs are traded on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

How to trade in Gold ETFs?

To trade in gold ETFs, you would need to open a Demat account through which you can invest in gold on an online platform through a broker. This is a seamless and secure way of buying or selling gold ETFs.

Benefits of Gold ETFs

• By trading in gold ETFs, purity is a given factor as every unit is the equivalent of physical gold of the highest purity.
• When you are investing in gold ETFs, there is no storage hassle, as you are dealing with a dematerialised form of the yellow metal.
• Investing in physical gold, particularly by way of jewellery, means you have to spend on making charges which can be anywhere in the 10-20 per cent range.
• With liquidity, gold ETFs offer a huge advantage over physical gold. You just need to open a Demat account and start trading. With a trading account, you can effortlessly trade on gold ETF without any entry/exit load when you buy/sell gold ETFs via your trading account.
• Gold ETFs don’t involve VAT, sales tax or wealth tax.
• Investing in gold ETFs is tax-efficient as any income you earn from them is classified as a long-term capital gain.

Who should invest in Gold ETFs?

Gold ETFs are the best option if you want to invest in gold instead of wearing it. You can use gold ETFs as a hedge against any kind of volatility. It helps in diversifying your assets and ensuring your portfolio is well-balanced.

How to Invest in Gold ETFs?

• Open a Demat account; typically platforms offer a Demat and trading account that you can open online.
• Provide the necessary basic documentation such as PAN card, and proof of address and identity.
• Once you get yourself an account, you can choose a gold ETF and buy one.
• The units get credited to your Demat account. When you wish to redeem your ETF, you will receive the cash equivalent of the value of gold.

Conclusion

Gold ETFs are ideal for those who wish to use gold as an investment option. Physical gold is hard to store and protect from theft. Gold in a dematerialised form is easy to sell or buy and is highly secure. Gold ETFs are transparent and can be bought at low denominations, as low as the equivalent of one gram of gold. With a Demat and trading account, you can seamlessly trade in gold ETFs on any of your smart devices and also avail of research and analysis to help you make informed choices.