Here, we will discuss about investing in gold exchange traded funds or gold ETFs
We will discuss what are the features that you should be keeping in mind when investing
What are its advantages and how you should be going about investing in gold ETF
All exchange traded funds have an underlying and it gold bullion for gold exchange traded funds
Their gold investments track the gold prices
This is a paperless investment in gold
Like all ETFs, Gold ETFs too are listed on the stock exchange
So, you basically get to buy and sell the ETF units during the market trading hours
1 unit of gold ETF is equivalent to 1 gram of gold which 99.5% pure
This means you don't have to worry about storing gold and its purity like physical gold
The reason why one should be looking at investing in gold ETF is the same as why one needs to invest in gold
In extreme economic conditions and uncertainty when markets are going up and down, it does well
Especially when asset classes such as equities and debt are not doing well
In such conditions, an investor is fairly confident of getting a basic return
And your overall return form the mix of your investments is going to be decent
The convenience argument can be forwarded for Sovereign Gold Bonds
Check out our previous presentations on Sovereign Gold Bonds with the links in the description section
The same is true for gold funds
When you invest in gold ETFs you don't need to track gold prices
Also, remember overall gold investment should not be more than 10%
There is also no entry and exit load which makes entry and exit for the investment easy
Remember, unlike physical gold investments you don't lose value when you sell
Gold ETFs help investors to invest small amounts in gold and benefit from it
You can take a loan against gold ETFs as they can function as collateral
Leading fund houses offer gold ETF
Like equity ETFs, in gold ETFs too, there is no provision for systematic investment plan for SIP
To invest regularly in gold ETF, you need to do it yourself
You don't get dividends in gold ETFs
You get annual coupon payments in Sovereign Gold Bonds
In a gold fund investing in gold mining and gold trading companies, you can get dividends
Gold ETFs can be part of 10% of investments for portfolios for major goals like children's future
During Dhanteras and Akshay Tritiya you can buy gold ETFs
There are discussions about tracking error about the divergence between net asset value of gold ETF and gold prices
If you are not to be investing a large amount in gold ETF, there is no need to bothered about tracking error
For investments less than years, capital gains are considered short term capital gains
They get added to your income and get taxed according to your relevant income tax rate
For more than three years, the capital gains are considered long term capital gains and pay long term capital gains tax
Cost of buying units gets elevated in the same proportion as inflation during the period
For tax purposes, this inflation indexation makes the capital gains for tax purposes, lesser
You get taxed at 20% long term capital gains tax
To invest in gold ETF, you need a PAN, ID proof and address proof
You also need a demat account and an online trading account