- Date : 11/10/2020
- Read: 5 mins
Let's see what exactly Gold ETFs offer and how they have performed in recent times. Are they worth considering as an investment option?
Gold has always been a favourite among Indians. Gold as an investment has attracted a lot of interest for a long time. One can invest in gold in multiple forms, both physical and online. Investing in gold online is one of the most efficient ways of owning gold as one does not have to take care of the physical asset.
So is gold a good investment option? Currently, gold prices are at an all-time high. With uncertainty plaguing most other investment avenues, everyone is betting on gold. In fact, the MCX Gold Futures Index opened at Rs, 51,350 per 10 gm touched an all-time high of Rs 51,468 in July 2020. Gold Exchange Traded Fund (ETF) is an investment fund in which one can trade in gold, just like stocks. This avenue has become very popular in the recent past as one can gain from the growth in gold prices while enjoying complete liquidity.
The first Gold ETF in India was launched in 2007. NSE lists 13 Gold ETFs, which are traded daily and are managed professionally by asset management companies (AMCs). Gold ETFs invest up to 95%–99% in gold bars and up to 5% in debt and money market instruments.
Related: 7 Benefits of investing in gold ETFs
Gold ETF as an investment
SEBI regulates gold ETFs, making it a reliable investment option. With ETFs, one has the flexibility associated with stock investments, simplicity of transacting, and the security of holding gold without having to store it safely. Holdings in gold ETFs are completely transparent because of their direct gold pricing,
Best Gold ETFs in India
Many ETFs have garnered upwards of Rs 25 crore over the years. Some of the best gold ETFs that have delivered consistent returns are listed below. These returns are as of 16th September 2020.
| Name of fund | 1 year (% absolute) | 3 years (% CAGR) | 5 years (% CAGR) |
|---|---|---|---|
| HDFC Gold ETF | 33.25. | 19.28% | 13.32 |
| Nippon India Gold ETF | 30.22 | 19.56 | 13.29 |
| SBI Gold ETF | 30.5 | 19.63 | 13.25 |
| Kotak Gold ETF | 33.27 | 19.32 | 13.58 |
| Aditya Birla Sun Life Gold ETF | 33.64 | 19.34 | 13.66 |
How to choose the right Gold ETF
While choosing a Gold ETF, it is important to track the historical performance of the fund house. The longer the track record, the better it is. Gold ETFs are heavily traded, so a higher trading activity translates to greater liquidity. Hence, funds with higher trading activity should be given preference.
If a company has higher assets under management (AUM), it’s a good sign as it reflects the size of the market value and the number of investors. Such factors reflect the reliability of the fund house. ETFs track the underlying index closely, so one can also consider funds with minimal tracking error.
Related: Gold ETFs vs Physical gold: Which one is better?
Some other points to remember while investing in Gold ETFs
One needs to purchase a minimum of one unit that is equivalent to one gram of gold to begin trading in Gold ETFs. A demat account is a must in order to invest in ETFs. The SIP mode of investing is not available. For taxation purposes, Gold ETFs are considered to be non-equity investments. Hence, taxation rules are similar to debt funds.
Investments in Gold ETFs are considered short-term if they are held for 3 years or under from the date of initial allotment. In such a case, short-term capital gains taxation rules will apply. Investments in Gold ETFs for a period exceeding 3 years from the date of initial allotment are considered to be long-term investments. For such investments, long-term capital gains taxation rules will apply.
Related: Global investment in Gold ETF
So, to conclude, one can readily consider including Gold ETFs as a part of one’s portfolio instead of buying gold jewellery and coins. Look at this difference between E-gold and gold ETFs.
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.
