Mudra Compass

As an Indian, I think gold does not need any introduction because, in India, gold has been considered the most precious and auspicious metal for all Indians for every occasion from ancient times. Gold is a symbol of wealth apart from its religious significance. Indians prefer gold in both ornament and investment. 

Earlier, gold was bought in the form of biscuits, coins, or bricks, but the way of purchasing gold is changed from physical to digital in the new time via gold ETF. It is the easiest way to buy gold in digital format rather than in physical.

Here we are listing down some tips for you, if you too are interested in buying gold ETF, but before that, let’s understand what a gold ETF is.

Gold Exchange Traded Fund is a mutual fund scheme to earn passive income through this instrument that invests in gold bullion. One unit of gold ETF is equal to one gram of gold. Gold ETF is operated and traded on the stock exchange. When you buy gold ETF, you are not buying physical gold, but you purchase stocks. 

How to invest in gold ETF?

You need a demat account and trading account to get started with a gold ETF as you do with another trading in the stock market.

Tips for investing in gold exchange-traded fund

If you have no idea about investing in gold ETF, you should consider the tips below that can help you.

• Before directly jumping into a gold ETF, consider your planning and goals and where your gold best fit in your financial goals because when you want to have short-term gold, you should invest for the short term. If you have medium-term gold, you should invest for the medium term. And if you have any long-term goal, you should invest for the long-term because the return varies from short-term to long-term.

• Get some ideas from gold ETF’s past performance and accordingly that choose the right fund to invest in. It is wise to invest in the fund that has given a return over the years rather than the fund that was only the top performer for last year.

• Investing in gold ETF is easier than physical in terms of authenticity, purity, and safety. If you have the budget to buy gold in bulk, consider investing in gold ETF.

• Tracking daily is important when you have invested in gold ETF. You should check the rise and fall of price so that when it is on the falling side, you can buy more units, and when it is on the rising side, you can earn profits on selling.

• Do not just stick to investing only in gold ETF. You have a diversified portfolio with other investment options.

• If you have invested in gold ETF through a fund manager, always watch your account and trading done in it.

• Before investing in gold ETF, look around for a fund house or fund manager as it involves brokerage or commission for trading gold ETF. Consider those who charge lower brokerage or commission but do not just check only low charges but also check other factors like how funds have performed in past years and how fund managers have handled the accounts.

Benefits of investing in gold exchange-traded fund

Compared to physical gold, gold ETF is a beneficial option to invest in. Here some of the features of gold ETF that makes it a good investment option:

• Gold is a safe investment against inflation and currency fluctuation.

• Buying and selling gold ETF is simple as you can buy a minimum of 1 unit of gold equal to 1 gram of gold.

• Gold prices are publicly available. So, it is considered open trading.

• Gold EFT transactions are easy as they cannot be affected by VAT or other taxes, and you can buy or sell from anywhere.

• Gold ETF does not have an entry or exit load for the purchase or sale of units which makes it inexpensive.

• There is no VAT, Wealth Tax, or Securities Transaction Tax on gold ETF. You only have to pay long-term capital gains for the units which are years older.

• Gold prices are not fluctuating heavily even if your return on equities decreases, gold ETFs could prevent you from losing.

• Amid volatile markets, a diversified investment portfolio gives you better returns and saves you from loss. Hence, it is a good option to add to your investment to diversify.

• Gold ETF can act as loan collateral if you want to get a loan from banks.

Drawbacks of investing in gold exchange-traded fund

Gold ETF seems like a lucrative option to invest in, at the same time we cannot deny its drawbacks. The funds are subject to market risk so choosing with care is essential to avoid risks. Some gold ETFs are illiquid which impacts their buying and selling flexibility. 

The Bottom Line

As compared to physical gold, it also has a good return and is safe, it acts as loan collateral, but at the same time, it is associated with market risk. So, choosing the right one is beneficial.