- Date : 13/01/2022
- Read: 4 mins
Learn how Gold ETFs work and how you can prudently invest in them.
Gold Exchange Traded Funds (ETFs) have revolutionised how we invest in the precious metal. They offer all the benefits of capital appreciation and portfolio diversification without the hassle of having to worry about the storage and safekeeping of the asset.
In fact, buying gold through ETFs is cheaper than buying physical gold as you do not incur making charges on buying and selling, which can erode anywhere between 8% and 15% of the value on one side of the transaction. Therefore, ETFs pretty much reflect the prevailing value of gold in the domestic market and even make it possible to make arbitrage gains on short-term holdings.
Related: Look Beyond Gold Jewellery And Invest In These Avenues Instead
How gold ETFs work?
A gold ETF invests in physical gold on behalf of retail investors. A number of asset management and financial companies offer an ETF in their product suite. Some of them are listed below:
- SBI Gold ETF
- Kotak Gold ETF
- Axis Gold ETF
- Nippon India ETF Gold BeES
- ICICI Prudential Gold ETF
- HDFC Gold ETF
- Canara Robeco Gold ETF
- Religare Gold ETF
- Aditya Birla Sun Life Gold ETF
- Quantum Gold Fund ETF
- IDBI Gold ETF
- Invesco India Gold ETF
- Motilal Oswal NASDAQ 100 ETF
All ETFs are listed and traded on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The Net Asset Value (NAV) of the fund reflects the real-time price variations (called spot price) of the metal.
Investment options start as low as one unit of an ETF, which is equivalent to a single gram of 24 karat gold (99.5% purity). Investors can track the movement of gold and the performance of their investment through various online channels, and buying/selling is possible on any day the stock exchanges remain open.
Also Read: Gold ETFs Vs Physical Gold: Which One Is Better?
How to invest in gold ETFs?
The first step would be to open a Demat and online trading account with a broker (if you don’t already have one). For this, you will need to furnish your PAN details, address proof, and identity proof. Most broking houses have a swift e-verification process, and your new account can be up and running in less than 48 hours.
Log into your broker's online trading portal with your new ID and password and link your bank account with the Demat account. This step is crucial; it ensures that all funds are transferred in and out in a swift and secure manner. The broker may debit your bank account with a nominal amount (say, Re 1) to check if the funds transfer works properly.
Next, look for the ETF section on the broker’s menu tab and select the gold ETF you want to invest in from all the options available. You will also have an option to make a lump sum investment or set up a Systematic Investment Plan (SIP) for monthly/quarterly purchases.
Related: 7 Benefits Of Investing In Gold ETFs
Once you have selected a suitable fund, you will have to reach a decision on the units you wish to purchase. The actual purchase value will be calculated basis the prevailing NAV at the time of purchase for the selected ETF plus brokerage charges.
Investors looking to purchase gold ETFs for holding purposes will have to buy gold under the CNC (Cash and Carry) product type for delivery. Those looking to do intraday trading will have to select the MIS (Margin Intraday Square-off) option.
Once the transaction is complete, you will receive a trade confirmation email and an SMS alert on your registered ID and phone. Your broker will then debit your bank account for the requisite trade value. Trading account holders who have a cash balance in their account will receive a debit from there first. Additional debits, if required, will be made to the bank account.
For a CNC trade, it may take 2–4 days for the ETF to reflect in your Demat account.
Last words
Look for a gold ETF that charges a low expense ratio for managing the fund, as well as a broker with affordable charges. Both of these charges and expenses will have a small bearing on your effective returns.
Gold Exchange Traded Funds (ETFs) have revolutionised how we invest in the precious metal. They offer all the benefits of capital appreciation and portfolio diversification without the hassle of having to worry about the storage and safekeeping of the asset.
In fact, buying gold through ETFs is cheaper than buying physical gold as you do not incur making charges on buying and selling, which can erode anywhere between 8% and 15% of the value on one side of the transaction. Therefore, ETFs pretty much reflect the prevailing value of gold in the domestic market and even make it possible to make arbitrage gains on short-term holdings.
Related: Look Beyond Gold Jewellery And Invest In These Avenues Instead
How gold ETFs work?
A gold ETF invests in physical gold on behalf of retail investors. A number of asset management and financial companies offer an ETF in their product suite. Some of them are listed below:
- SBI Gold ETF
- Kotak Gold ETF
- Axis Gold ETF
- Nippon India ETF Gold BeES
- ICICI Prudential Gold ETF
- HDFC Gold ETF
- Canara Robeco Gold ETF
- Religare Gold ETF
- Aditya Birla Sun Life Gold ETF
- Quantum Gold Fund ETF
- IDBI Gold ETF
- Invesco India Gold ETF
- Motilal Oswal NASDAQ 100 ETF
All ETFs are listed and traded on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The Net Asset Value (NAV) of the fund reflects the real-time price variations (called spot price) of the metal.
Investment options start as low as one unit of an ETF, which is equivalent to a single gram of 24 karat gold (99.5% purity). Investors can track the movement of gold and the performance of their investment through various online channels, and buying/selling is possible on any day the stock exchanges remain open.
Also Read: Gold ETFs Vs Physical Gold: Which One Is Better?
How to invest in gold ETFs?
The first step would be to open a Demat and online trading account with a broker (if you don’t already have one). For this, you will need to furnish your PAN details, address proof, and identity proof. Most broking houses have a swift e-verification process, and your new account can be up and running in less than 48 hours.
Log into your broker's online trading portal with your new ID and password and link your bank account with the Demat account. This step is crucial; it ensures that all funds are transferred in and out in a swift and secure manner. The broker may debit your bank account with a nominal amount (say, Re 1) to check if the funds transfer works properly.
Next, look for the ETF section on the broker’s menu tab and select the gold ETF you want to invest in from all the options available. You will also have an option to make a lump sum investment or set up a Systematic Investment Plan (SIP) for monthly/quarterly purchases.
Related: 7 Benefits Of Investing In Gold ETFs
Once you have selected a suitable fund, you will have to reach a decision on the units you wish to purchase. The actual purchase value will be calculated basis the prevailing NAV at the time of purchase for the selected ETF plus brokerage charges.
Investors looking to purchase gold ETFs for holding purposes will have to buy gold under the CNC (Cash and Carry) product type for delivery. Those looking to do intraday trading will have to select the MIS (Margin Intraday Square-off) option.
Once the transaction is complete, you will receive a trade confirmation email and an SMS alert on your registered ID and phone. Your broker will then debit your bank account for the requisite trade value. Trading account holders who have a cash balance in their account will receive a debit from there first. Additional debits, if required, will be made to the bank account.
For a CNC trade, it may take 2–4 days for the ETF to reflect in your Demat account.
Last words
Look for a gold ETF that charges a low expense ratio for managing the fund, as well as a broker with affordable charges. Both of these charges and expenses will have a small bearing on your effective returns.
