How to Invest in Gold Exchange Trade Fund?


Buying gold as an investment has been almost like a custom among a large number of Indian households. If you want to understand the importance of gold in the lives of Indians, just attend an Indian wedding, and you’ll know what we are trying to elaborate here. A majority of gold is purchased in the form of jewellery for social as well as investment reasons. However, when you purchase gold in the form of jewellery, especially for investment, such type of investment comes at a high expense ratio. With physical gold, especially jewellery, there is a fear of theft; it needs to be stored in a bank locker which costs money; there are making charges involved, and the resale value is relatively lower than gold in other forms. And most importantly, the biggest concern is about the purity of gold.

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Thanks to the evolution in the investment sector, gold lovers, if they wish to have the option to purchase gold in the form of Gold ETF and Gold funds. Indians can now invest in gold through these investment tools instead of purchasing physical gold and save themselves from all the expenses and worries that come with it.

If you wish to find more about Gold ETF and how to invest in it, read further:

What is Gold ETF?

Gold ETF (Exchange Traded Fund) is a type of investment product which can be purchased and sold on the stock exchange. This fund generally tracks the price of physical gold as its benchmark, and hence, investors can buy Gold ETFs close to the actual price of the gold. It can be considered as a simplified approach for investors looking to invest their hard earned money in the yellow commodity.

How does Gold ETF work?

Gold ETFs work similarly to mutual funds; the only difference between the two is that mutual funds invest in equity and debt securities, whereas Gold ETFs have just physical gold in its portfolio. This is how Gold ETFs work:

  • ETF Units are created – The mutual fund generates gold units keeping physical gold at the core. Once these gold units get listed in the stock market, they are available for trading.
  • ETF units are traded at the exchange – Investors may buy/ sell Gold ETF units in the stock market. Just like any other type of funds, a number of units will either be credited or debited to your trading account.
  • Valuation Changes of ETF Units – Since Gold ETF units track physical gold as a benchmark, any changes in the value of the physical gold may result in the changes in the Net Asset Value of the Gold ETF.

Are there any benefits of investing in Gold ETF?

Like all mutual funds, investing in Gold ETFs have some advantages to it. Here are few of them –

  • No need to worry about safeguarding your investment: It goes without saying that gold ETFs are in digital format which are stored in one’s trading or Demat account. Investors needn’t worry about its security or safety as the product is not in the physical form.
  • You needn’t worry about the purity of gold: Gold ETFs invest in physical gold that has to meet internationally acceptable hallmarked gold standards and with minimum fineness (or purity) of 995 parts per 1000 (99.5%). Hence investors needn’t worry about the purity or quality of gold, unlike purchasing physical gold where your investment value may involve some risk.
  • Similarity in pricing: As gold ETFs are traded at the stock exchange, investors, irrespective of their geographical location may invest in these funds at prevailing trading prices. On the other hand, when it comes to buying physical gold, prices may differ from vendor to vendor.

How to invest in Gold ETFs?

Investing in Gold ETFs is quite simple. All investors need is a Demat account, and they can purchase or sell Gold ETFs just like any mutual fund.

Mutual fund investments are subject to market risk. Read the offer document carefully before investing.