Investing In Gold ETFs – A Full Guide

In India, gold is often seen as a 'golden investment opportunity.' Investing in gold can yield good returns and help you diversify your portfolio. However, not everyone wants to purchase physical gold because it requires safekeeping, comes with add-on charges like making charges for gold jewellery, and concerns about the metal's purity. 

What can an investor do in such situations? Well, don't worry. You can still diversify your portfolio by investing in Gold ETFs in India.

Here is our complete roadmap on How to invest in Gold ETFs. Keep reading to learn What Gold ETF is, How Gold ETFs work, How to buy Gold ETFs in India, and more. 

Meaning of Gold ETF

If you are new to investing, you should first understand "What is Gold ETF and how does it work?"

Gold ETFs are exchange-traded funds that are based on commodities that invest in assets like gold. 

Gold ETFs in India are exchange-traded funds that are operated and get traded on the stock exchange like individual stocks. This differentiates them from mutual funds, gold bonds, and gold funds. 

But What is Gold ETF in the context of exchange-traded funds? Do they invest in physical gold? Yes, but in this case, the physical gold is represented in both dematerialized and paper forms. So, when you invest your money in gold ETFs, you do not purchase actual physical gold. Instead, you purchase stocks. Once these stocks are traded, they are credited with the cash equivalent of each unit. 

If you are worried about where your hard-earned money is going, understand that the Securities and Exchange Board of India (SEBI) regulates Gold ETFs in India, and each unit you purchase is supported by actual gold. 

Things you must keep in mind while investing in Gold ETF in India

Now that you know how Gold ETFs work, here are some things you should remember before investing in Gold ETFs. 

1. Remember that your long-term goals need long-term investments, short-term goals need short-term investments, and medium-term goals need medium-term investments. Where does Gold fit in with your financial goals? Remember that long-term returns on gold can be as low as 10% annually. Therefore, investing in Gold ETFs should be a short or medium-term investment for you and align with your short or medium-term goals. 

2. Gold ETFs in India are subject to brokerage and commission fees which can range from 0.5% to 1%. So, be mindful of these charges before investing in Gold ETFs. Choose your gold ETF carefully. It is tempting to opt for the one which has the lowest fees. However, do not make this your sole criterion. Instead, observe the fund's past performance. For example, you can look at a particular Gold ETF’s return in the last 10 years. This will help you understand how well the fund managers are operating the fund and make an informed investment decision. 

3. Are you willing to invest large sums of money and engage in frequent trading? If yes, then investing in Gold ETFs will prove to be more financially viable than other gold-based investments. 

4. When starting out, avoid investing large sums of money in gold. It is recommended to keep the share of gold ETFs under 5% to 10% in your overall portfolio. 

How to buy Gold ETF in India?

If you are looking for easy ways to invest in gold ETFs, you can check out gold ETF FoFs (fund of funds) on Tata Capital’s Moneyfy app. 

Gold ETF fund of funds are excellent avenues for investing in gold as an asset class. The fund seeks to provide returns of gold through investments in India’s top-rated gold ETFs, which in turn invest in physical gold. In this way, you can enjoy the returns of gold in a digital form: 

1. Without purchasing physical gold 
2. Without creating and operating a DEMAT account.

Here are the steps you need to follow: 

1. Download the Moneyfy app
2. Complete your registration and KYC process. It only takes a few minutes. 
3. When your account is ready, you can start investing in mutual funds of your choice. 
4. Search for Gold ETFs FoFs, and the app will show you the best funds for you. 
5. Start investing through an SIP or make a lump sum investment. For best results, set up your risk profile and create a financial goal. In this way, you will be able to assess how much to invest and for how long. 

Benefits of investing in Gold ETFs

We have already covered the two major benefits of investing in gold ETFs. One, they help diversify your portfolio. And two, they are safer and easier to maintain than physical gold bars or jewellery. But that's not all! Here are some more advantages of investing in Gold ETFs: 

• Gold ETFs are popular because gold is considered a safe investment and can be used as a protection against currency fluctuation and inflation. 
• The trading process is simple and straightforward. Buying and selling units of gold ETFs is as easy as trading equity and stocks through your trading portal.
• You can start small, with 1 unit of gold equal to 1 gram of gold. 
• Gold prices are transparent and publicly available, and you can always check them online before buying and selling.
• You can operate your trading account wherever you are and avoid the VAT-related price differences in gold.
• Gold ETFs are inexpensive because they have no entry or exit load of buying and selling units. You only must pay brokerage charges.  
• There is no VAT, wealth tax, or securities transaction tax on gold ETFs. You only must pay long-term capital gains tax for units which are older than a year. 

Disadvantages of investing in gold ETFs

These funds are subject to market risks, and their performance is tied to how well the ETF firm is performing. You can incur losses if the firm's balance falls below a certain amount, or the NAV falls below a certain amount. You can avoid these risks by carefully selecting a gold ETF after assessing its past performance.

 In conclusion

Do you want to diversify your portfolio? Explore a wide range of investment options with Tata Capital's Moneyfy. Download the app today and discover top-rated mutual funds, corporate FDs, gold funds, and more suited to your financial goals and risk profile. Visit the website to learn more about Moneyfy.