Top 9 Gold ETFs: Know what they are, how to invest in them
The gold ETF being an exchange-traded fund can be bought and sold only on stock exchanges thus saving you the trouble of keeping physical gold.
Therefore, if your objective is to bank on the value of gold increasing in future, investing via the ETF route is the answer. Similar to mutual funds where the value of one's investment is a reflection of the value of underlying securities (equity or debt), in gold ETF, gold is the underlying asset.
What is gold ETF?
The gold ETF being an exchange-traded fund can be bought and sold only on stock exchanges thus saving you the trouble of keeping physical gold. What's more, unlike with jewellery, coins and bars which come with high initial buying and selling charges, the gold ETF costs much lower. The transparency in pricing is another advantage. The price at which it is bought is probably the closest to the actual price of gold, and therefore, the benchmark is the physical gold price.
Top Gold ETFs ( As on 6 May, 2019)
|Gold ETF Name||YTD (%)||TER(%)|
|Kotak Gold Exchange Traded Scheme||1.18||1|
|Canara Robeco Gold ETF||-0.55||1|
|Axis Gold Exchange Traded Fund||-0.71||1.11|
|Reliance ETF Gold BeES||-0.85||1|
|HDFC Gold Exchange Traded Fund||-0.94||1.09|
|UTI Gold Exchange Traded Scheme||-0.96||1.09|
|Quantum Gold Exchange Traded Scheme||-1.14||1.03|
|Aditya Birla Sun Life Gold ETF||-1.51||1.03|
TER: Total expense ratio
How to invest in gold ETFs
Gold ETFs trade on the cash market of the National Stock Exchange, like any other company stock, and can be bought and sold continuously at market prices. What you need is a trading account with a share broker and a demat account. One may either buy in lump sum or even at regular intervals through systematic investment plans (SIP). What's more, you may even buy 1 gram of gold. Create a plan to invest systematically rather than trying to time the market.
Steps in buying Gold ETF (Through an Online Trading Account)
Step 1: Open an online trading and demat account with a stock broker
Step 2: Log in to the website of the broker's online trading portal using your login ID and password.
Step 3: Choose the Gold ETF you want to invest in
Step 4: Place the buy order for the purchase of a specified number of Gold ETF units
Step 5: Web system debits your bank account (Fund transfer through linked savings account)
Step 6: Units are credited to your demat account on trade day + 2nd day
Gold ETF charges
Even though there are no entry or exit charges in gold ETF, there are three costs associated with them. One, is the expense ratio (for managing the fund) which is generally lower compared to other mutual funds and is around 1 percent. Second, is the broker cost that needs to be accounted for every time you buy or sell units. Third, which technically is not a charge but impacts returns is the tracking error. It arises because of the fund's expenses and cash holdings thus not mirroring actual gold prices.
How to pick the right Gold ETF
There are about twelve Gold ETFs in the market. Performance of these funds would largely be in the same range as it is linked to the movement in in prices of physical gold. Keep an eye on tracking error and the trading volume. Opt for funds with lower tracking error and higher trading volumes. There is no lock-in of funds and buying, selling can happen during trading hours (i.e., 9.15 hrs to 15.30 hrs). Therefore, avoid partial withdrawals or early exits, and link your investments to a long term goal.
Gold ETFs are treated as non-equity investments and taxed accordingly. Short-term capital gains on units held for less than 36 months will be added to investor's income and taxed as per the applicable slab rate. Long term capital gains on units held for more than 36 months will be taxed at 20% after providing for indexation.
What you should do
As an investor, gold warrants a space in one' portfolio aimed at long-term goals. Hold not more than 10 percent of gold in your investment portfolio preferably in paper form. If prices dip, allocate more to the asset else sell when allocation towards gold in your portfolio goes up. Alternatively, one may consider investing in the sovereign gold bonds.