Finance

How to Invest in Gold Exchange Trade Fund?

24/09/2023

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, attend an Indian wedding, and you’ll know what we are trying to elaborate on here. A majority of gold is purchased in the form of jewelry for social as well as investment reasons. However, when you purchase gold in jewelry, especially for investment, such a type of investment comes at a high expense ratio. There is a fear of theft with physical gold, especially jewelry; it needs to be stored in a bank locker that costs money; there are making charges involved. The resale value is relatively lower than gold in other forms. And most importantly, the biggest concern is about the purity of gold.

Thanks to the evolution in the investment sector, gold lovers 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:

Contents Summary show

What is Gold ETF?

Gold ETF (Exchange-Traded Fund) is an investment product 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 price of the gold. It can be considered 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 their 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. Like any other type of fund, many 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 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. Here are a few of them –

There is no need to worry about safeguarding your investment: It goes without saying that gold ETFs are in digital format, which is stored in one’s trading or Demat account. Investors needn’t worry about its security or safety as the product is not in 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.
The 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 buying physical gold, prices may differ from vendor to vendor.