For centuries, gold has been one of the defining standards of value. Needless to say, it was only a matter of time before the commodity became a trade asset. However, buying bullion or gold coins is not the only way to invest in this market. In fact, purchasing a gold ETF in India offers greater flexibility without compromising the underlying value of the metal.
This article explains it all. Let’s get to it!
An Exchange Traded Fund (ETF) is a cross between a mutual fund and a stock. These are open-end assets whose prices vary based on the real-time market cost of a specific commodity. However, unlike other mutual funds, ETFs can be traded in an exchange.
Now, a gold ETF is where the commodity in question is, you guessed it, gold. So, an individual invests in measured units of the precious metal, and once trading has closed, they are credited with the cash equivalent of the final amount.
As such, since gold ETF price is based on the real-time value of the commodity, investors capitalize on market fluctuations to turn a profit. In other words, they are the same as most other securities and can be used for short-term returns or long-term gains.
What are the Benefits of Purchasing a Gold ETF in India?
Historically, gold has been one of the most stable assets and an inflationary hedge. And because the prices of these ETFs are based on the actual market cost of the metal, investors in such assets enjoy the same security and stability they would get if they traded physical gold.
Aside from that, here are three other advantages of buying a gold ETF in India:
In a typical scenario involving physical gold, investors have to identify reliable dealers. Then, the purity of the metal would need to be verified. Following that, you must allocate storage space to the asset in a third-party depository or a bank.
This isn't even considering the challenges that arise while selling physical gold, which include high mark-ups, research and authentication of dealers and getting a fair return. Gold ETFs have none of these issues. Trading in such assets is no different than purchasing or selling a stock.
Previously, profits on a gold ETF fund were considered to be Long-Term Capital Gains (LTCG). Returns on the investment after 3 years had a tax of 20% with indexation. However, as per the changes in Budget 2023, the yields from such assets are categorized as short-term gains. In other words, taxes are applicable as per your current slab.
Yet, that is still better than the GST surcharge you must pay while selling physical gold. And because gold bullion or coins do not have any special tax concessions that are different from their ETF variant, it’s easy to see which of the two is more tax efficient.
Apart from the significantly lower financial commitment, investing in a gold ETF in India offers immense flexibility. These assets are paperless and are traded and sold like standard stocks on an exchange through your Demat account.
Put simply, unlike gold coins or bullion; there are no storage demands. More importantly, since there is no lock-in period, gold ETFs have the edge over other financial or investment options, including bonds, fixed deposits and saving schemes.
If you want to invest in a gold ETF in India, Fi Money has you covered! Offering several short-term and long-term investment options, the app also has multiple provisions to help facilitate steady financial growth.
For instance, our peer-to-peer-based 'Jump' feature lets you avoid inflationary pressure while enjoying a 9% return p.a. on your initial investment. There's also our 'Smart Deposit', which enables you to prioritize short-term gains.
Sign up on the app today to avail yourself of these perks and more!
1. How can I buy gold ETFs?
Both the NSE and BSE list gold ETFs. By signing up on Fi Money, you can directly purchase them from your account. In addition, unlike buying physical gold, the prices won't fluctuate based on your region.
2. What are some of the risks associated with buying gold ETFs?
Like a mutual fund, ETFs are merely a trading vehicle or ‘wrapper’. In short, if you buy a gold ETF in India, and the price of the metal drops significantly for some reason, your initial investment value will also dip. However, since the commodity is relatively stable compared to other assets, the chances of this happening are low.
3. Is Gold ETF a good investment?
Gold ETFs are an excellent choice to diversify your portfolio if you find it inconvenient to purchase physical gold. And since gold is relatively stable, prices tend to be less volatile.
4. What are the benefits of investing in Gold ETFs?
Asset flexibility, ease of market participation and minimum financial commitments are the three prominent advantages of investing in gold ETFs. Moreover, since the actual commodity determines the price, these assets can be safe investments.
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