Gold is unique as a market commodity. Whether it is a recession or a time of economic boom, trading in gold continues at all times. Yes, there are some price fluctuations, and yet its value is not diminished. In India, the desire to possess gold is strong in all classes of society. Even the poor classes gave some gold ornaments, which they prize a lot like family heirlooms. Business families use their gold to get loans. As a result, you can see that buying and selling will always continue. To further facilitate and encourage this habit, the government has revealed gold ETFs. Gold Exchange Traded Fund or ETFs are investment funds in which investors invest money in gold producing firms and in gold bullion by trading gold ETFs on the market stock exchange.
One can buy gold ETFs with open-ended mutual funds, and the funds collected through its trading are invested in turn in the gold market. Market experts are of the opinion that returns received from these are close to the ones one can get from trading physical gold.
How to use Gold ETFs?
In Gold ETFs, you basically invest in gold that it listed on the market index of stock exchanges. These funds are passively managed, which means that these funds don’t require the oversight of a fund manager. Gold ETF invest in portfolios having numerous companies. Through Gold ETFs, you can therefore invest in Gold stock exchange traded funds and Gold Price exchange traded funds. Gold stock ETFs are typically associated with those companies who are in gold mining and other related activities. You can also invest in companies that deal in Gold price index.
Benefits of trading in Gold ETFs?
There are several benefits here.
There’s no need to make changes when purchasing gold ETF units as in the case of physical gold jewelry, bars, coins and such.
- Golf ETF units are linked to your KYC documents and records, which means there’s no need to worry about them being stolen. Additionally, you won’t need to worry about the gold’s purity either.
- You can sell these at any time you want, unlike the selling of physical gold which is a long and tedious process.
- You can benefit from trading in an ETF since the Indian economy is gaining right now. The rupee is in a strong position against the dollar.
- Gold ETFs have more liquidity, which means you can sell these and convert these into cash fast. The process is easy too.
The price of gold ETFs is the same everywhere, unlike physical gold. Thus, you don’t need to worry about quality, price variation, weight, purity and other factors.
You can keep gold ETFs as collaterals when getting loans too.
There are many benefits here, as you have seen.
However, there are certain downsides too.
Downsides of using Gold ETFs
- Gold ETFs won’t help you if your mind is set on buying gold coins and gold jewelry. These may replace the monetary value but not the sentimental value.
- You can redeem the value of a Gold ETF in cash but not in gold. Additionally, you’ll need to open a Demat account to trade in them and also pay the annual maintenance of the account.
Lastly, you need to check a gold ETFs performance before investing in it.
Understand that tax on Gold ETF is similar to debt funds.
At the end of the day, the benefits outweigh the cons. Gold ETFs are easy to get and to deposit safely as compared to physical gold. You should certainly have this in your portfolio.
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