The yellow metal has always been given a lot of cultural and emotional value in India. From use during auspicious occasions like marriage to passing on family heirloom, it has always carried a lot of sentimental value. Unlike before when people used to buy physical gold and stored them in the form of coins or bullions, people prefer gold ETFs as a form of investment.
What are Gold ETFs?
An exchange-traded fund (ETF) that tracks the domestic physical gold price is known as a Gold ETF. Physical gold is represented through gold ETFs, which can be in paper or dematerialized form. 1 gm of gold is equal to one Gold ETF unit, which is backed by actual gold of extremely high purity. Gold ETFs, like any other stock, are listed and traded on the National Stock Exchange of India (NSE) and the Bombay Stock Exchange Ltd. (BSE). Gold ETFs, like any other corporate stock, trade on the cash section of the BSE and NSE and may be purchased and sold at market prices on a continuous basis.
When you buy Gold ETFs, you’re buying gold in an electronic form. You may purchase and sell gold ETFs in the same way that you would equities. You don’t get physical gold when you redeem the Gold ETF; instead, you get the monetary equivalent.
Gold ETF Advantages
If you are planning to invest in Gold ETFs, there is no better time to do it. Here are some advantages that come with it
- Gold ETFs act like a hedge against inflation as well as the volatile stock market in recent times. It means if the gold price suddenly plummets, investors can use ETF or exchange traded funds to make up for the loss.
- ETFs that are held for more than 3 years will also provide you tax benefits. Here’s how- The income earned from such ETFs are treated as Long Term Capital Gains Tax along with benefits of cost indexation.
- Gold ETFs have remained considerably stable considering how the stock market has corrected itself under the pressure of the pandemic situation.
- One can start a SIP on Gold ETFs in order to collect gold for future events like marriage.
- With the help of gold ETFs, one can systematically interact with it meaning you only invest what you want at the time and reap the benefits.
In short, gold ETFs are flexible just like stock investments but at the same time aids investors to become exposed to the yellow metal.
Gold ETF Disadvantages
- Minimum amount needed to by Gold ETF is around Rs. 4,900 as minimum quantity you can buy is 1 gm.
- Short term capital gain tax applicable as per tax slab & Long term capital gain tax is 20%.
- Gold ETFs track the NAV and not the direct gold price, thus there is 1-3% tracking error.
- Physical delivery of accumulated gold is difficult or not advised
- You will also need to have a DEMAT account and its fees.
Should I invest in a Gold ETF?
If you are not interested in owning actual gold, well, you don’t you have to. The outstanding performance of gold-based traded funds is an attractive investment option for conservatives. Moreover, gold ETFs charge a meagre amount of brokerage( 0.5% to 1%) thus letting you save a lot on your commission charges. So, if you are comfortable with the disadvantages then by all means go ahead!
How to choose the right ETF scheme to invest in?
The only way to determine whether or not to invest in an ETF scheme is by looking at the profitability of the ETF scheme. Here are some determining factors:
- Assets Under Management(AUM)– First of all, what is AUM? It is the market value of all financial assets that the company is managing for its investors. A high AUM value means the company has a lot of clients and handles numerous portfolios.
- Net Asset Value( NAV) – It is the net value of the company’s assets minus the liabilities. This is also the value of each ETF share. The NAV of a company is calculated by the total value of all security assets( without the liabilities) divided by the number of outstanding fund shares.
- Returns- Any profits or income gained from an ETF scheme will be considered returns. It’s a no-brainer that you should go for the ETFs with consistently higher returns.
One should choose their ETF schemes carefully considering all these factors.
Gold ETF history
Gold ETFs were first introduced in 2003 before which investing and trading in gold was largely a niche business. With physical gold, investors had to have proper storage and management. Additionally, there’s always a risk regarding the purity of gold. With the introduction of Gold ETFs, investors no more had to worry about maintenance and storage. Additionally, one could buy a unit of gold for as low as Rs 42. However, gold ETFs have come a long way since then.
In India gold ETFs have been traded since March 2007. First proposed by the Benchmark Asset Management company Pvt LTD with SEBI, Gold ETFs have proved to be largely successful. However, this is no longer offered in the exchange.
How has it been performing so far?
India has 13 gold ETF schemes operating so far. These are:
- Birla Sun Life Gold ETF
- Goldman Sachs Gold ETF
- Religare Invesco Gold ETF
- Quantum Gold Fund
- SBI Gold ETF
- IDBI Gold ETF
- R*Shares Gold ETF
- Axis Gold ETF
- Kotak Gold ETF
- ICICI Prudential Gold ETF
- UTI Gold ETF
- HDFC Gold ETF
- Can Gold ETF
As seen by the market trends, there has been an increase in the popularity of Gold ETFs with investors in recent years. In spite of a short slump period, gold ETFs are gaining momentum once more and this is very evident in the performance of all Gold ETF assets in 2021. Here is a short table of the best performing Gold ETF assets with valuation more than 25 crores that you can invest in 2021.
|Fund Name||Net Asset Value(NAV)||Total Assets in Crores||3 months||6 months||1 year||3 years||5 years||2020|
|Aditya Birla Sun Life Gold Fund( Growth)||15.2972(+0.21)||252||5.1||2.3||-2.4||15.1||8.6||26|
|Invesco India Gold Fund (Growth)||14.5822(+0.01)||49||2.8||0.1||-4.7||15||9.4||27.2|
|SBI Gold Fund (Growth)||15.2312(+0.04)||1198||3.7||1.3||-3.7||15.7||9.8||27.4|
|Nippon India Gold Savings Fund (Growth)||19.9403+(0.03)||1437||3.7||1||-3.9||15.3||9.5||26.6|
|Axis Gold Fund (Growth)||15.0559(+0.03)||255||3.5||0.2||-3.4||15.1||8.8||26.9|
Here are some returns percentages from the above mentioned gold ETFs since the last 3 years.
|Fund Name||Percentage Returns (since the last 3 years)|
|Aditya Birla Sun Life Gold Fund||15.1%|
|Invesco India Gold Fund||15%|
|SBI Gold Fund||15.7%|
|Nippon India Gold Savings Fund||15.3%|
|Axis Gold Fund||15.1%|
As you can see, they have constantly managed to generate returns over 15%.
Further surveys as of 31st Oct, 2021 have revealed that both asset allocation and investment grew impressively.
What can we look forward to?
With the current inflow of investment and a stable percentage of returns, experts are sure that gold ETFs will remain a popular choice among people who don’t wish to hold physical gold or folks who might want to collect liquid gold for future investments.
By now, you must have understood that gold ETFs will continue to be popular because it is one of the easiest liquid ways to invest in international markets. If you want liquidity at your fingertips, then Gold ETFs are definitely for you. If you are still pondering whether to invest in one, we recommend going ahead. Best of luck!