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Posted on  March 19, 2024 under  by Ayush Maurya

What is Gold ETFs: List, Advantages and Risks

Gold Exchange Traded Funds (ETFs) have emerged as popular investment vehicles in India, allowing investors to gain exposure to the gold market without the hassle of owning physical gold. In recent years, the interest in ETFs has surged among Indian investors seeking to diversify their portfolios. This article aims to provide a comprehensive understanding of What is Gold ETFs, including their advantages and risks, tailored to the Indian stock market.

What is Gold ETF?

Gold ETFs, or Gold Exchange-Traded Funds, are investment funds traded on stock exchanges and backed by physical gold bullion. In simpler terms, they are like baskets of gold held by big companies that manage them. These companies ensure that a small amount of actual gold is stored safely somewhere for every share of the ETF you own.

In India, ETFs are regulated by the Securities and Exchange Board of India (SEBI), which is like a watchdog that ensures everything is fair and safe for investors. Various mutual fund companies offer ETFs to investors who want to put their money in gold without buying and storing physical gold.

The goal of Gold ETFs is to follow the price of gold as closely as possible. So, if the price of gold goes up, the value of your ETF shares should increase, too, and vice versa. This way, investors can benefit from the movement of gold prices without the hassle of buying and storing gold bars or coins.

List of Gold ETFs in India

Several mutual fund companies in India offer Gold Exchange traded funds, providing investors various options based on their investment objectives and preferences.
Apart from list, here is the Best 5 Gold ETFs in India:

ISSUERNAMESYMBOL
Canara Robeco MFCanara Robeco Gold Exchange Traded FundCANGOLD
Axis Mutual FundAxis Gold Exchange Traded FundAXISGOLD
Birla Sun Life Mutual FundBirla Sun Life Gold Exchange Traded FundBSLGOLDETF
HDFC Mutual FundHDFC Gold Exchange Traded FundHDFCMFGETF
ICICI Prudential Mutual FundICICI Prudential Gold Exchange Traded FundIPGETF
IDBI AMCIDBI Gold Exchange Traded FundIDBIGOLD
Kotak Mutal FundKotak Gold Exchange Traded FundKOTAKGOLD
Quantum Mutual FundQuantum Gold Fund (an ETF)QGOLDHALF
Reliance Mutual FundReliance Gold Exchange Traded FundRELGOLD
Religare Mutual FundReligare Gold Exchange Traded FundRELIGAREGO
Reliance Nippon Life Asset Management LimitedReliance ETF Gold BeESGOLDBEES
UTI Mutual FundUTI GOLD Exchange Traded FundGOLDSHARE

Advantages of Investing in Gold ETFs

Investing in Gold ETFs offers several advantages for Indian investors:

  • Portfolio Diversification: It effectively diversifies investment portfolios beyond traditional asset classes like stocks and bonds, reducing overall portfolio risk.
  • Liquidity: It can be bought and sold on the stock exchange during trading hours, offering investors higher liquidity than physical gold.
  • Cost-Effectiveness: It eliminates the costs of buying, storing, and insuring physical gold, making it a cost-effective investment option.
  • Tax Benefits: Long-term capital gains from Gold ETFs held for over three years are taxed at 20% with indexation, providing potential tax advantages for investors. Additionally, investors should be aware of ETF tax implications similar to those of physical gold investments.
  • STT Exemption: It offers a unique advantage as they are exempt from Securities Transaction Tax (STT) during buying and selling transactions, potentially reducing overall transaction costs for investors.
  • Hedge Against Volatility: It serves as a hedge against market volatility and economic uncertainty, stabilising investment portfolios during turbulent times and acting as a store of value.

Risks Associated with Gold ETFs

While Gold ETFs offer several advantages, they also come with certain risks that investors should be aware of:

  • Market Risk: The value of ETFs is directly linked to the price of gold, and fluctuations in gold prices can affect the returns of these ETFs.
  • Counterparty Risk: They are subject to counterparty risk, as the assets of the issuing mutual fund company back them.
  • Tracking Error: Variations in the performance of ETFs compared to the underlying gold prices, known as tracking errors, can impact investor returns.
  • Regulatory Risk: Investors need to be aware that changes in regulatory policies and taxation can significantly impact the potential attractiveness of ETFs as an investment instrument. Stay informed and vigilant to ensure your investment portfolio remains solid and stable.

How to Invest in Gold ETFs

You can invest in Gold ETFs without any hassle in easy steps using the below instructions:

Step 1: To begin, connect with a stockbroker to establish an online trading and DEMAT Account, the initial and most critical step. ( Click here to get your free demat )

Step 2: Then, utilise your Login ID and Password to access your account via the broker's online trading portal website.

Step 3: In the subsequent step, search for the ETF you wish to invest in. You can make a lumpsum investment or invest regularly through systematic SIPs. Additionally, you can explore Mutual Funds that include inherent gold exchange traded funds.

Step 4: Order a buy order for specific ETF units.

Step 5: Upon completion, expect to receive a confirmation message via your designated Phone number or Email Address.

Step 6: The web system will automatically debit a small fee from your linked Savings Account.

Swing or intraday trading opportunity in Gold ETFs?

Yes, Investors can do swing trading and intraday trading in Gold ETFs like trading on equity. Since ETFs are traded on stock exchanges daily, investors can use short-term price movements to buy and sell ETF units for potential profits. Swing traders may capitalise on medium-term price trends, while intraday traders seek to profit from price fluctuations within a single trading day. However, it's important to note that trading in ETFs involves market risks, and investors should conduct thorough analysis and risk management before engaging in swing or intraday trading activities.

Does Price of Action work in Gold ETFs..?

Price action analysis can be applied to Gold ETFs like any other financial instrument traded on the stock market. Price action analysis studies price movements, patterns, and trends without relying on indicators or other external factors.

Factors such as supply and demand dynamics, investor sentiment, macroeconomic conditions, and geopolitical events can influence price movements when trading ETFs. Therefore, understanding price action patterns and interpreting them in broader market conditions can be valuable. Still, it's also essential to consider other factors, such as fundamental analysis, market sentiment, and risk management techniques, to make well-rounded trading decisions in ETFs.

Should I Invest or Trade in Gold ETFs ?

Choosing Gold ETFs for Investment or Trading purposes depends on your individual financial goals, risk tolerance, and investment strategy:

Trading in Gold ETFs

If you have a short-term outlook and are comfortable with taking on higher levels of risk, then trading ETFs may be suitable. Traders aim to profit from short-term price movements by buying and selling ETF units based on technical analysis, market trends, and trading signals. However, trading requires active monitoring of market conditions, disciplined risk management, and the ability to make quick decisions.

Investing in Gold ETFs

It is more suitable for investors with a long-term perspective who seek to diversify their portfolios, hedge against inflation, or preserve wealth over time. Investors hold onto ETF units for an extended period, benefiting from the potential appreciation of gold prices over time. Investing in Best Gold ETFs can provide exposure to the long-term benefits of gold as an asset class while offering liquidity, transparency, and cost-effectiveness compared to physical gold ownership.

Gold ETF vs Sovereign Gold Bond vs Physical Gold

Here's a comparison between Gold ETFs, Sovereign Gold Bonds, and Physical Gold:

AspectGold ETFsSovereign Gold BondsPhysical Gold
Investment MethodTraded on stock exchangesIssued by the governmentPurchased as bars or coins
Nature of InvestmentFund-holding gold assetsBond issued by the governmentPhysical possession of gold
LiquidityHighly liquid, traded like stocksTradable on exchangesLess liquid requires selling
CostBrokerage fees and management feesNo entry or exit chargesPremiums and making charges
StorageNo physical storage is neededNo physical storage is neededRequires safe storage
ReturnsReflect gold prices, dividends possibleInterest and capital gainsDirectly linked to gold prices
RiskMarket and liquidity risksInterest rate and credit risksSecurity and theft risks
ConvenienceEasy buying and sellingPaperless transactionsRequires physical handling
Tax TreatmentCapital gains tax applicableTax benefits on redemptionCapital gains tax applicable

Strategies for Investing in Gold ETFs

Indian investors can adopt various strategies for investing in ETFs based on their investment goals and risk tolerance:

  • Dollar-Cost Averaging: Investing a fixed amount regularly in ETFs can help investors average the cost of their investments over time.
  • Long-Term Investment: Holding ETFs as a long-term investment can help investors benefit from the potential appreciation of gold prices over time.
  • Tactical Allocation: Adjusting the allocation to ETFs based on market conditions and economic outlooks can help investors optimise their portfolio returns.

Conclusion

Gold Exchange traded funds have emerged as popular investment options for Indian investors looking to gain exposure to the gold market. By understanding the types, advantages, and risks associated with Gold ETFs, investors can make informed investment decisions that align with their financial goals and risk appetite. However, investors must conduct thorough research and seek professional advice before investing in ETFs to maximise their investment returns and minimise risks.

Frequently Asked Questions

1. Which Gold ETF pays the highest dividend?

Gold ETFs typically do not pay dividends as they are designed to track the price of gold rather than generate income. Instead, investors may benefit from capital appreciation when the price of gold rises.

2. Is Gold ETF taxable?

Yes, They are subject to taxation in India. Long-term capital gains on this ETFs over three years are taxed at 20% with indexation benefits.

3. What is the difference between Gold ETF and Physical gold?

Gold ETFs offer high liquidity, lower transaction costs, and eliminate storage concerns. Physical gold provides direct tangible asset ownership but may involve higher storage costs and security risks. 

4. Which is the best gold ETF to invest?

Here is the list of Best Gold ETFs in India to invest in 2024.

5. What is the purpose of Gold ETF?

It serve as a convenient and cost-effective way for investors to gain exposure to the price movements of gold without the need for physical ownership. They offer a means of diversifying investment portfolios, hedging against inflation and currency devaluation, and providing stability during market volatility.

6. Who Should Invest in Gold ETF Funds?

They are suitable for a wide range of investors, including those looking to diversify their investment portfolios, hedge against economic uncertainty, and preserve wealth over the long term. Investors with a moderate to high-risk tolerance seeking exposure to the potential benefits of gold as an asset class may find ETFs valuable to their investment strategy.

7. Is Gold ETF a good investment?

Whether an ETF is a good investment depends on individual investment objectives, risk tolerance, and market conditions. Gold ETFs offer advantages such as liquidity, cost-effectiveness, and transparency. However, they also carry risks like any investment, including price volatility and potential losses. Investors should carefully evaluate their financial goals and conduct thorough research before investing in ETFs.

Ayush Maurya

Written by Ayush Maurya

Ayush is a seasoned financial markets expert with over 3years of experience. He has a passion for breaking down complex financial concepts into simple, digestible terms. Through his 50+ articles, Ayush has helped countless individuals navigate the often intimidating world of finance.

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