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What is gold ETF?

Gold has been used as an investment option for hundreds of years. Families today buy gold as a form of investment because the value of gold is known to appreciate over time.

Once the price is high, the gold is sold at a higher rate, thus gaining a profit. This is the simplest form of gold investment. However, there are a few shortcomings of this investment model. In addition to the price of gold, the customer also has to pay for the making charges for the gold ornament that they are buying. Also, once you buy the gold, the onus of keeping it safe and secure is entirely on you and the risk associated with saving a significant amount of gold is high.

However, most of these problems have been solved with the introduction of the Gold ETF or Gold Exchange Traded Funds. Read on to find out more about gold ETF and how you can invest in it.

What is gold ETF?

A gold ETF is a form of investment associated with domestic gold prices. They are passive instruments that allow investors to directly invest in gold bullion without having to physically buy gold. Just like a stock market investment is carried out by buying ‘stock’, which is nothing but one unit of a company, a gold ETF is invested in by buying units of high purity gold where one unit is equal to one gram of gold.

And similar to stock market investing, Gold ETFs are bought and sold at the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). When you buy specific units of a gold ETF, it is backed by the same number of units in physical form of very high purity gold. The only difference is that you do not get the gold physically. You’re essentially buying the gold only on paper in a dematerialized form. Even when you redeem the Gold ETF, you will receive the cash equivalent of the gold at the current gold price.

Who should invest in gold ETF?

Investors who want to enter the gold market but want a very low risk investment are most suitable for Gold ETFs. The money invested goes into 99.5% pure gold bullion. Gold ETF is a very low-risk investment option, and thus, conservative investors who want to diversify their investment can look into Gold ETF as a form of investment. Also, people who want to invest in gold but want to do away with additional taxes and safe-keeping costs for the gold can opt for Gold ETF.

Features of Gold ETF

Ease of trading

Investing in Gold ETF is extremely easy and convenient. Since one unit of a Gold ETF is equal to one gram of gold, you can buy as little or as many units to want, either via a stockbroker, or an ETF fund manager . Just like equities, buying and selling Gold ETF can be done on a daily or hourly basis.

Liquidity

Gold ETFs are highly liquid funds as they can be redeemed at a trading session at the stock exchange instantly and the transactional fee is also nominal. Investment liquidity is important if you’re in urgent need of liquid cash and a gold ETF can help you achieve that in a short time.

Greater flexibility

Gold ETF funds are highly flexible modes of investments. Buying gold directly from a retailer for investment will require large amounts of cash. But in the case of Gold ETFs, you can buy any amount as per your wish since it gives you that kind of flexibility.

Low risk

The gold market is not as volatile as the stock market, and hence, investment in Gold ETF is considered as a very low-risk investment.

Transparency

Gold prices on the stock market are available for everyone to see publicly, every hour of every day. So, there is nothing happening behind the curtains that you don’t know about. Thus, Gold ETF is one of the most transparent means of investment.

How does Gold ETF work?

If you want to start investing in Gold ETF, all you need initially is to open a Dematerialized or a Demat Account, which you may already have if you participate in stock market investing. You can do this by approaching a bank, a stockbroker or a financial institution of your choice. Once you choose your Gold ETF, your ETF fund manager will buy or sell the Gold ETF on your behalf and charge a small stockbroker’s fee on the same. The actual process is very similar to buying and selling shares on the stock market.

Conclusion

Thus, investing in Gold ETF can be an excellent investment option for conservative investors looking to enter the gold market. It is a highly convenient, flexible and a stable form of investment since gold doesn’t see as much price fluctuations as the stock market. In the end, Gold EFTs efficiently combine the flexibility of stock market investing with the transparency and simplicity of gold investment in one neat package.