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What is Gold ETF?
Gold has always lived up to its reputation of being a safe haven. In this article, we will talk about How Gold ETF works and how gold metals can shine in your portfolio through exchange-traded funds or ETFs.
According to the World Gold Council gold is one of the best-performing asset classes and has delivered a return of 11 percent as of May 2024. This shows that in times of uncertain market volatility or turmoil, precious metals such as gold can be viewed as a safe asset class. However, investing in physical gold can be a huge problem, especially regarding security and storage.
Which is why the recommendation is to invest in gold ETFs. when you invest in a gold ETF You don’t own any physical gold instead what you hold is the cash equivalent of the price of gold so when you sell that ETF you do not receive the precious material in any form but you earn the cost of the gold at the time at that point of sale.
By investing in a gold ETF you can gain exposure to the performance of the gold or its daily price movements and because financial experts believe that gold ETFs rise when a currency goes down if your investment portfolio has gold assets you could use that to balance the exposure in your portfolio.
How Gold ETF Works
The gold ETF helps you invest in gold in the form of paper gold.
Gold ETF gives you a much simpler much more cost-effective methodology of acquiring gold because this world is also run by mutual funds and other agencies.
What they do is they buy the gold on your behalf and store it in lockers so you don’t have to physically deal with the gold. first thing is the inconvenience of handling those gold nuggets and finding a space to store them. all that is out of the question for you.
Second, is that when you buy gold and sell gold right very often in the jewelry business there is what is known as a making charge and waste cage which is protected not only that there’s a selling price and a buying price so you can go to a jeweler and buy the gold in the morning the same person in the evening if you want to resell it back to him there will be a cost to you a loss to you because the buying price and the selling price are different.
All of these problems can be avoided and minimized by investing in both through gold ETF which is a paper gold that you can buy at any time and sell at any time you get the gold price differential into your account and hence as an investment option gold ETFs make far better sense than buying gold jewelry or gold nuggets.
Sovereign gold bonds As an Option
You can also view sovereign gold bonds as an excellent investment option sovereign gold bonds are issued by the Reserve Bank of India on behalf of the Indian government. these are bonds that are denominated in gold by investing in the government of India’s sovereign gold bonds scheme you stand to benefit from –
1. With An attractive interest rate with an opportunity of appreciation you can redeem it at current gold prices you also eliminate the risk and cost of storage and if you hold it till maturity a sovereign gold bond is also exempt from capital gains tax remember that
with a sound understanding of how gold ETF works, you could find it to be a lucrative investment opportunity and benefit in the long run.
Gold ETF Vs Gold Funds
| GOLD ETF | GOLD FUND | |
| How to Buy | Demat Account | Mutual Fund |
| SIP | No | YES |
| Minimum Investment | High | Low |
| Liquidity | High | Higher then ETF |
| Exit Load | No | 1%2% Before 1 Year |
| Expense Ratio | Up to 1% | Up to 1.5% |
| Brokerage | As per broker | No |
| Tax | STCG before 3-year(as per tax slab) LTCG after 3 years (20%+4% cess) with indexation | STCG before 3-year(as per tax slab) LTCG after 3 years (20%+4% cess) with indexation |
Physical delivery
Regarding the physical delivery of gold in gold ETF if you have a minimum of 1kg around the price of gold units then you can apply for physical delivery of gold but in gold funds, there is no physical delivery.
you can’t mortgage any two to apply for a loan.
Difference between Index Fund and ETF
SO ETFs to expand the term it’s called exchange-traded funds it’s very similar to an index fund the difference between an index fund and an EFT is that an EFT exactly buys the share in the relevant index and ETF is always related to an index. So when they buy that they might get exact so the tracking error in index funds is very minimal in ETFs that’s one they are also low-cost products.
Conclusion
Gold ETF can be considered a safe, simpler, and time-saving investment option. You can receive a lot of benefits in gold ETF and gold fund over digital and physical gold. And between ETF And Gold fund
Gold ETF is cheaper than a gold fund because here you have to give less expense ratio and there is no exit load but at the same time the minimum investment amount can be higher and there is no SIP means every month you have to remember and make an investment at the same time.
On the other hand, gold funds are more expensive than ETFs because you have to give a high expense ratio and exit load but here you have an option of SIP and the investment amount is also less. So you have to decide which product is better for you.
Gold fund is also just the way to invest in ETF.
Frequently Asked Questions (F&Q)
1. How is gold ETF calculated?
You can calculate Gold ETF on the basis of the current market price of gold and the funds in holdings
2. Is gold ETF taxable income?
Yes, Gold ETFs are subjected to capital gains tax.
3. Do gold ETFs pay interest?
No, gold ETFs do not pay any kind of interest, they are based on the value of gold.
4. Is it better to buy physical gold or gold ETF?
It depends on investment and personal preference goals but gold ETF provides convenience, and modernity and physical gold provides visible ownership.
5. Why is gold ETF high risk?
Due to Economic factors and market volatility which affects gold prices.
