- Date : 05/10/2020
- Read: 4 mins
With gold ETFs replacing physical gold as a lucrative investment option in India’s favourite metal, let’s take a look at some tips and tricks to invest in these funds.
Gold has always been a favourite asset of Indians since time immemorial. Traditionally, it used to be owned in physical form, such as gold jewellery or gold coins. Today, however, gold ETFs (exchange traded funds) are considered to be the modern way of investing in gold, These open-ended mutual fund schemes based on the market price of gold are considered to be a low-risk investment.
Ever since gold ETFs were launched in India in 2007, many people have chosen to add these funds to diversify their portfolio and lower its overall risk element. Here are 5 things to keep in mind while investing in gold ETFs to ensure optimal returns and a smooth investment experience:
Choose your fund/fund manager carefully
Just as with other mutual funds, it’s imperative that you choose a gold ETF and fund manager carefully. Do not pick one solely on the basis of the fees charged, as saving money in the short term pales in comparison with earning significant returns over the long term. A strong approach to choosing a fund is to review its performance over the past few years. A good fund manager is one who is adept at managing the fund efficiently and has a proven track record with high trading volumes. So, choose wisely to ensure that you reap good returns on your money.
Related: Gold ETFs vs Physical gold: Which one is better?
Monitor your investment regularly
Since gold ETFs are based on the current market price of the metal – which keeps fluctuating due to various factors – it’s important that you keep an eye on your investment. Just as with other funds, you should buy when the price is low and exit when you feel that the price has reached its peak. Even if your gold ETF is managed by a fund manager, it’s a good idea to stay on top of things, at least at the start.
Restrict your investment in gold ETFs
While gold ETFs are considered to be a low-risk investment option, they also generate comparatively lower returns than more high-risk investment options. Also, these funds are recommended for short- to medium-term periods of investment as the rate of return decreases if you leave your money parked in a gold ETF for a long time. So, the best way to invest in a gold ETF is to allocate not more than 10% of your investment portfolio to a fund for no longer than 5 years.
Related: 7 Benefits of investing in gold ETFs
Understand the charges involved
While gold ETFs do not come with the burden of any entry or exit fees, there are other costs associated with investing in these funds. The two main charges you need to keep in mind are the expense ratio, which is the fee of 0.5%–1% that you pay the fund manager for managing your investment, and the brokerage fee that is incurred every time you make a trade.
Related: What is the difference between E-gold and gold ETFs?
Choose your mode of investment
As with other mutual funds, gold ETFs allow you to invest the allocated amount at one go as a lump sum, or systematically invest at regular intervals . Understand your cash flow scenario and investment goals carefully before making a commitment. Also, since you can start by investing in as little as 1 gram of gold, you can start slow and build your investment over time as you gain confidence in the fund.
So, ditch the high costs, inconvenience, and security-related hassles associated with gold in physical form (such as jewellery and coins) and opt for gold ETFs instead. This steady investment avenue is definitely a good way to balance out your more risky investment choices. Is gold a safe investment avenue in bleak times like these? Read this article that will help you make an informed decision.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.
Gold has always been a favourite asset of Indians since time immemorial. Traditionally, it used to be owned in physical form, such as gold jewellery or gold coins. Today, however, gold ETFs (exchange traded funds) are considered to be the modern way of investing in gold, These open-ended mutual fund schemes based on the market price of gold are considered to be a low-risk investment.
Ever since gold ETFs were launched in India in 2007, many people have chosen to add these funds to diversify their portfolio and lower its overall risk element. Here are 5 things to keep in mind while investing in gold ETFs to ensure optimal returns and a smooth investment experience:
Choose your fund/fund manager carefully
Just as with other mutual funds, it’s imperative that you choose a gold ETF and fund manager carefully. Do not pick one solely on the basis of the fees charged, as saving money in the short term pales in comparison with earning significant returns over the long term. A strong approach to choosing a fund is to review its performance over the past few years. A good fund manager is one who is adept at managing the fund efficiently and has a proven track record with high trading volumes. So, choose wisely to ensure that you reap good returns on your money.
Related: Gold ETFs vs Physical gold: Which one is better?
Monitor your investment regularly
Since gold ETFs are based on the current market price of the metal – which keeps fluctuating due to various factors – it’s important that you keep an eye on your investment. Just as with other funds, you should buy when the price is low and exit when you feel that the price has reached its peak. Even if your gold ETF is managed by a fund manager, it’s a good idea to stay on top of things, at least at the start.
Restrict your investment in gold ETFs
While gold ETFs are considered to be a low-risk investment option, they also generate comparatively lower returns than more high-risk investment options. Also, these funds are recommended for short- to medium-term periods of investment as the rate of return decreases if you leave your money parked in a gold ETF for a long time. So, the best way to invest in a gold ETF is to allocate not more than 10% of your investment portfolio to a fund for no longer than 5 years.
Related: 7 Benefits of investing in gold ETFs
Understand the charges involved
While gold ETFs do not come with the burden of any entry or exit fees, there are other costs associated with investing in these funds. The two main charges you need to keep in mind are the expense ratio, which is the fee of 0.5%–1% that you pay the fund manager for managing your investment, and the brokerage fee that is incurred every time you make a trade.
Related: What is the difference between E-gold and gold ETFs?
Choose your mode of investment
As with other mutual funds, gold ETFs allow you to invest the allocated amount at one go as a lump sum, or systematically invest at regular intervals . Understand your cash flow scenario and investment goals carefully before making a commitment. Also, since you can start by investing in as little as 1 gram of gold, you can start slow and build your investment over time as you gain confidence in the fund.
So, ditch the high costs, inconvenience, and security-related hassles associated with gold in physical form (such as jewellery and coins) and opt for gold ETFs instead. This steady investment avenue is definitely a good way to balance out your more risky investment choices. Is gold a safe investment avenue in bleak times like these? Read this article that will help you make an informed decision.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.
