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WHAT IS GOLD ETFs: INVESTMENT PROCESS, FEATURES AND BENEFITS

For centuries, buying gold among Indians has been very popular. Buying gold has been one of the go-to investment options. In fact, India is the second-largest buyer of gold in jewellery form in the world. Seeing this fondness among Indians for buying gold jewellery, gold Exchange Traded Funds (ETFs) were introduced in March 2007 in India. The underlying asset of the ETF is gold and gives the investor insight into the gold market.

What is Gold ETF?

Buying gold jewellery is termed as a form of investment because the price of gold is known to appreciate over time. Once the price of gold is high in the market, the gold can be sold at a higher price. However, buying gold also comes with additional charges, as the buyer has to pay for the making charges as well. Also, once a buyer buys gold jewellery, the onus of keeping it safe and secure is entirely on the buyer, and the risk associated with saving a significant amount is also high. Hence, most of the problems of keeping physical gold have been solved after introducing gold ETF in the Indian market.

Gold ETF investment is an excellent option for investors looking to beat inflation in the long run. Moreover, gold in a physical form is more volatile when compared to equities. A gold ETF is an investment type where investment is associated with domestic gold prices. One gold ETF is equivalent to one gram of gold. So, it gives an investor the benefit of stock trading as well as gold investment. Buying gold coins, jewellery, or bar is expensive, but buying it in the form of gold exchange-traded funds comes at a price near the actual gold price. When buying physical gold from a retailer, the price difference between the physical gold and paper gold is mainly due to the jeweler’s margin, making charges, locker charges, etc.

Gold ETFs are listed on both the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The stock is represented by 99.5% of pure gold. These ETFs can be bought and sold at the same price across the nation.

Who can invest in Gold ETFs?

Gold ETFs are suitable for investors who are looking to diversify their portfolios in the gold market. It is a very low-risk investment option as the money that gets invested goes into 99.5% pure gold bullion. People who want to invest in gold but don’t want to pay additional charges to keep physical gold can opt for gold ETF.

How to Invest in Gold ETF?

  • Step 1: Open a Demat account in your choice of bank and a trading account online by submitting the necessary documents like PAN, ID proof, and residential proof.
  • Step 2: Select a gold ETF according to your choice and order one.
  • Step 3: You will get a confirmation on your registered email ID and contact number.
  • Step 4: A nominal fee will be deducted for brokerage during the transaction.

Features and Benefits of Gold ETFs

Ease of Trading

Gold Investment Schemes like gold ETF are a very easy and convenient option for investors. Since one unit of gold ETF is equivalent to one gram of gold, investors can buy as many units they want via a stock broker or an ETF fund manager. Like the stock exchange, buying and selling gold ETF can be done at any time.

Liquidity

If you are in urgent need of liquid cash, a gold ETF can help you achieve that in a short period with a nominal brokerage fee charged during the transaction. Gold ETFs are highly liquid funds as the fund can be redeemed instantly without waiting for a longer duration.

Greater Flexibility

Buying physical gold from a retailer can be very expensive. But in the case of gold ETFs, an investor can buy any amount of gold as per their choice since it gives an investor that kind of flexibility.

Transparency

Gold prices are not something that is hiding behind the curtains. The gold prices are dynamic in nature, and people can see the changing price through multiple sources. Hence, it is the most transparent means of investment.

How do Gold ETFs work?

If you want to start investing in a gold ETF, all you have to do is open a Demat account in any financial institution of your choice. In case if you are already engaged in the stock market, you might already have a Demat account. Once you choose your gold ETF, your ETF fund manager will buy gold on your behalf, and a nominal brokerage fee will be deducted during the transaction. To put it simply, when you buy a gold ETF, a fund manager at the back-end is purchasing the gold. The fund managers give a guarantee to the investors about the purity of the gold too. The National Stock Exchange allows only authorized members to handle the purchase and sale of gold to generate ETFs. Constant trading by the authorized members ensures that there is no discrepancy between the gold market price and the gold ETF price. Buying and selling gold ETF is very similar to buying and selling shares on the stock market.

Since gold prices don’t see much flexibility in the market compared to the stock exchange, gold ETF is the most convenient, easy, and flexible form of investment for investors who wish to enter the gold market with low investment risks. Invest in the best gold ETF option through Muthoot Finance and never worry about extra expenses to keep your gold in physical form. Before buying gold jewellery, think of investing in a gold ETF if you want to enter the gold market and are looking for an option to cover urgent cash emergencies.

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