How to Invest in Gold ETF?
- 17 Oct 2024
- By: BlinkX Research Team
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A gold ETF, or gold exchange-traded fund, is a kind of investment fund that allows one to trade in gold without buying physical gold. Gold EFTs can be traded on stock exchanges like the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE). Gold ETFs can be a good way to invest in gold without buying physical gold. Moreover, they are an appropriate way to diversify the investment portfolio and also hedge against inflation and currency depreciation. This blog covers the gold ETF meaning and other related aspects like how to invest in gold ETFs, factors to consider when investing in gold ETFs, and more. Keep reading!
Ways to Invest in Gold ETFs
There are two best ways to invest in gold ETFs: the direct approach and the passive approach. If you want to buy Gold ETF through a direct method, you need to open a Demat account through a stock broker app. Once you open the Demat account, just like buying shares, you can buy units of the gold ETF directly through the stock exchange using the app.
If you do not want to invest in gold ETFs with a Demat account, the second way to invest is by using the passive approach. Here, you choose a gold fund that invests indirectly in gold ETFs. Many investors find this method usually easy or convenient, especially if they are familiar with mutual fund investing through the online trading app.
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Table of Content
- Ways to Invest in Gold ETFs
- How to Invest in Gold ETFs?
- Benefits of Gold ETF
- Points to Bear in Mind When Investing in Gold ETFs
- Gold ETFs Compared With Other Investment Products
How to Invest in Gold ETFs?
You can purchase and sell Gold ETFs at market prices from the cash segment of the stock exchange, just like any other company. To trade gold ETFs, you need to have a Demat account and a trading account. Units can be purchased online with the help of a reliable stockbroking platform. The following are some steps on how you can invest in gold ETFs online:
- Step 1: Open an online Demat account.
- Step 2: Select the fund you want to purchase.
- Step 3: Place an order for the units through the broker’s portal that you have selected.
- Step 4: Purchase at your convenience. Here, you are allowed to buy a lump sum of units or invest systematically using SIP at regular intervals.
- Step 5: Once the buy order is matched with the sell order on the stock exchange, a confirmation will be sent to you via email on your phone.
Remember that brokerage charges or fees might be levied for a nominal amount of transaction. The defined amount of charges will differ from broker to broker. A clearer understanding of the gold ETF meaning and its steps helps you to experience a smooth process of investing in gold ETFs.
Benefits of Gold ETF
Investing in gold ETFs offers various advantages. This includes:
Easy to Trade
Buying and selling Gold ETFs is similar to purchasing and selling some other equity-based fund. However, investing in gold ETFs simplifies almost everything, which may include, the trading procedures, potential returns, research, etc. Trading for these ETFs gets even more simplified via a stockbroker or an ETF fund manager. In addition, they can be traded during working business hours and are a lot easier to liquidate.
Additionally, information about gold prices and performance is also available publicly on the stock exchange. It creates transparency throughout the process and allows traders to track changes.
Potentially Low Market Risk
The price of gold generally fluctuates less, so even if investment returns decline sharply, major, significant losses can be avoided here.
Tax Benefits
In addition to capital gains tax, these transactions are exempt from value-added tax, securities transaction tax, and VAT, providing investors can defer taxes on their investments.
If an individual invests in physical gold, such as buying large quantities of gold jewellery or gold bullion, they may have to pay the wealth tax. Therefore, investing in gold ETFs is better for tax savings as they are not subject to wealth tax.
Free from Entry & Exit Loads
There is no entry or exit load when it comes to Gold ETFs. This results in almost no additional fees for buying or selling these funds. As a result, only 0.5% to 1% of the cost per transaction goes as a brokerage for investors.
Points to Bear in Mind When Investing in Gold ETFs
If you want to invest in gold ETFs, the following are some pointers that might be helpful for you:
- When choosing a gold ETF or fund manager, don’t choose only on the basis of low cost. Instead, the performance of the funds should be analysed to see how well fund managers are managing accounts.
- Gold is more suitable as a short- to medium-term investment because the long-term returns on gold are usually low.
- If you are worried about what will happen to your finances, consider that gold ETFs are regulated by SEBI and ensure as well that every unit is backed by real gold.
- Avoid investing heavily in gold. Instead, it’s a good idea to allocate 5–10% of your savings to gold ETFs. This may strengthen your portfolio and keep your potential gains stable.
- Given that brokerage or commission fees for gold ETFs range from 0.5% to 1%; it’s best to check the ETF market for a well-funded stockbroker or fund manager.
- Before you start investing, check the trends in the prices of gold. You may need to buy gold ETFs at affordable prices and then sell them when the price goes up, just like with stocks.
- When the fund manager is managing your Gold ETF, look at your accounts and the trades that have been made for you. You can increase the productivity of your portfolio through regular analysis.
- If you are looking to invest a potentially big amount or trade frequently, a Gold ETF will be more suitable than other investments in gold.
Gold ETFs Compared With Other Investment Products
Gold ETFs offer investors a unique way to gain exposure to gold without physically owning it. Let's compare Gold ETFs to other popular gold investment options:
Feature | Gold ETFs | Physical Gold | Gold Mutual Funds | Sovereign Gold Bonds |
Investment Type | Gold ETFs trade on stock exchanges like shares. Investors buy units representing gold. | Investors purchase and own actual gold in the form of coins, bars, or jewellery. | These funds invest in gold-related stocks or physical gold. Investors buy fund units. | Government-issued bonds offer returns linked to gold prices. |
Liquidity | Gold ETFs have potentially high liquidity. | Physical gold has lower liquidity. | Gold mutual funds offer moderate liquidity. | Sovereign Gold Bonds have very low liquidity. |
Costs | Gold ETFs have low costs, mainly in the form of a low expense ratio charged by the fund. | Physical gold involves high costs. This may include making charges for jewellery. | Gold mutual funds charge moderate fees. | Sovereign Gold Bonds have no direct costs for investors. |
Storage | Investors hold Gold ETFs in electronic form in their Demat accounts, eliminating physical storage concerns. | Physical gold requires secure storage, often in bank lockers, which adds to the overall cost and risk. | Like ETFs, gold mutual fund units are held in Demat accounts, requiring no physical storage. | Sovereign Gold Bonds are also held in Demat form. |
Conclusion
Gold ETFs offer a unique way of investing in gold without ownership of the physical metal. They combine the advantages of investing in gold with the ease of selling gold. Investors can buy and sell Gold ETF units through a Demat account on the stock market. Gold ETFs have advantages such as ease of trading, low market risk, and tax advantages. They also have no entry and exit fees. When investing in Gold ETFs, it is important to research the performance of the fund. Additionally, choose a reliable and secure platform like BlinkX online trading app for positive outputs. Gold ETFs offer better returns and lower holding fees. They are a convenient option for those looking to add gold to their investment portfolio.
