Gold ETFs: A convenient way to invest in gold this Diwali

The tradition of buying gold on auspicious occasions has always been a part of the Indian tradition. Come Diwali, Indian households will once again be stepping out to make festive gold purchases.

As an Indian investor, one can choose to gain exposure to yellow metal through multiple types of gold investment products. Among all the options available, if the need is not for ornaments, the option which is most liquid and comes across as a compelling investment choice is gold exchange-traded funds (ETFs).

For the initiated, gold ETFs invest in gold bullion which is as good as investing in physical metal but is held in electronic form as mutual fund units that are stored in a Demat account.

Each unit of gold ETF is backed by physical gold of very high purity. Just like every other ETF, gold ETF too is listed and traded on the stock exchanges. So, an individual can easily buy and sell at any time during trading hours. So, if you are an investor looking to purchase gold from an investment point of view, then gold ETFs can be an optimal way to make an allocation to gold. From a portfolio allocation perspective as well, gold ETFs are better placed.

Attributes of gold ETF

Affordability: The cost of investing is relatively lower than buying, storing and insuring physical gold.

Reliable: Gold ETF aims to purchase gold of 99.5% purity or higher.

Lower Expenses: As compared to physical gold investments, the expenses associated are minimal as there are no making charges associated.

Liquidity: Gold ETF can be liquidated at any time at Real Time NAV (Net Asset Value) on the
exchanges during trading hours as per one’s requirement starting from one unit. As a result, it is more flexible than liquidating jewellery, coins or bars.

Collateral: ETFs are accepted as collateral for loans.

Tax Efficient: Income earned from gold ETFs is treated as long-term capital gain if held for more than 3 years, making it a tax-efficient way of holding gold.

Diversification: Can be used as a tool for diversifying one’s portfolio.

Aspects an Investor should be Mindful About

The prices of ETFs rallies or dips in line with the prices of physical gold. As a result, gold ETF is best used as a tool to benefit from the price of gold i.e. investors can reap the benefits of investing in gold without having to actually buy the physical asset.

On redemption, an investor receives the cash equivalent and not physical gold. In effect, gold ETF one can be rest assured of the exposure through to yellow metal at a cheaper price and through a safer possible method.

Also, when investing through ETFs, there is flexibility to accumulate or sell units in smaller lots as per one’s requirement.

When investing in gold ETFs, an investor has the option to invest through systematic investment plans (SIPs) or opt for lump sum investment. While at it, one need not worry about purity, storage hassles etc. So, this Diwali, enhance the sparkle of one’s investment portfolio by opting to invest in a gold ETF.