Are you searching for an alternative investment within the area of storage of physical gold in your portfolio? Then, ETFs of gold will be the best alternative to modernized investors. This extensive guide presents how to invest in gold ETF in India and make sure it is the best option for your investment strategy.
Understanding Gold ETFs
Gold ETFs are financial products that follow the price of domestic gold in physical custody. Each unit of the gold ETF corresponds with one gram. When you buy an ETF, you buy gold in electronic format. Such funds are highly liquid and convenient in being exchanged on the stock exchange in the same way as normal shares.
Benefits of Investing in Gold ETF
There are several benefits of gold ETF that make gold ETF investments largely more beneficial than holding physical gold. Some of them are mentioned below:
- Liquidity: One can buy and sell gold ETF easily on the stock exchange, making it highly liquid.
- Purity Guarantee: Each unit represents pure gold. This resident the marginal risk of impurity.
- Cost-Effective: Gold ETF can be invested in without worrying about any making or storage charges unlike physical gold.
- Diversification: The funds invested in gold through gold ETF would also serve to spread the risk and most importantly hedge against inflation.
- Transparency: Gold ETF prices are directly linked to the gold prices and updated on a real-time basis.
Step-by-Step Guide: How to Invest in Gold ETF
1. Essential Requirements
Here are what you’d have to possess if you were to invest in gold ETFS:
- A demat account
- A trading account
- KYC documents
- PAN card
- bank account connected to your trading account
2. Choosing the Right Gold ETF
Now, before you invest, analyze the various EFTs using these criteria:
- Expense ratio
- Trading volumes
- Fund size
- Tracking error
- Asset management company reputation
Popular options include:
- Nippon Gold Bees
- SBI Gold ETF
- HDFC Gold ETF
- Axis Gold ETF
3. Making Your First Investment
Choose the gold ETF and follow these to let you make your first-investment:
- Log into your trading account
- Search for the gold ETF symbol
- Check the current market price
- Place your buy order specifying quantity and price
- Complete the transaction
Best Practices for Gold ETF Investment
Now you need to know about the following strategies that will help maximize your returns from your investment in gold ETF:
- Systematic Investment: Systematic investment plan (SIP) of regular purchases from a gold ETF may also be considered.
- Market Timing: While gold shares can fluctuate and experience regular price swings throughout the day, try to buy on dips.
- Portfolio Allocation: Financial experts recommend keeping gold investments to 10-15% of your total portfolio.
- Long-term Perspective: Know you must perceive gold ETF as a long-term investment to attain better returns on your investment and achieve tax-effectiveness.
Tax Implications of Gold ETFs in India
You must understand the taxation of gold ETFs before investing in them:
- Short-Term Capital Gains (STCG): In case you sell your gold fund units within three years, the gains would be taxed as per your income tax slab.
- Long-Term Capital Gains (LTCG): The gains from selling a gold ETF after three years would be taxed at a rate of 20% with indexations.
- No Wealth Tax: No wealth tax is applicable to a gold ETF, unlike a physical gold ETF.
Monitoring Your Investment
Regular watching of your investment in a gold ETF is a must:
- Trace the performance of the ETF against the gold price
- Review expense ratios from time to time
- Monitor tracking errors.
- Compare performances with other gold ETFs
Risks of Investing in Gold ETFs
Gold ETFs, while relatively convenient to invest in, also come with certain risks:
- Market Risks: Gold ETF prices are affected by global gold prices and market conditions.
- Tracking Errors: The performance of the fund may be slightly deviated with reference to the actual gold prices due to tracking errors.
- Expense Ratio: The overall returns may be affected with a higher expense ratio.
Conclusion
The practice of capital investment in gold ETF can be deemed as a huge ingredient in making a fine investment portfolio. It is much cheaper, more liquid, and less troublesome than actually owning physical gold. Due to these reasons, gold ETFs are quite in trend nowadays. Most advisors recommend starting out small and moving towards greater levels of exposure to Gold ETFs based on one’s risk profile in conjunction with one’s objectives.
And remember-as in any other form of investment-conduct proper research before investing large amounts into Gold ETFs, and in this decision one might involve the help of a financial advisor.
