10 Key Benefits of Gold ETFs You Should Know

Gold has been a trusted investment for centuries, and for good reason. Its reputation as a safe-haven asset is unmatched, especially in times of economic uncertainty. However, investing in physical gold comes with challenges like storage, security, and purity concerns. What if you could avoid all those issues while still enjoying the benefits of gold? Enter Gold Exchange Traded Funds (ETFs)—an efficient way to invest in gold without the usual complications. If you’re looking for an investment that offers both security and ease, a Gold ETF might just be what you need.

In India, the popularity of Gold ETFs has been steadily growing. As of 2023, data from the Association of Mutual Funds in India (AMFI) shows that assets under management (AUM) for Gold ETFs stood at over ₹21,000 crore. This reflects a growing interest among investors who want exposure to gold without dealing with its physical limitations. So, what makes Gold ETFs such a compelling choice? Let’s explore the benefits of Gold ETFs:

1. Easy to Buy and Sell

One of the greatest advantages of Gold ETFs is the ease with which they can be traded. Unlike physical gold, which requires visits to a jeweller or dealer, Gold ETFs can be bought and sold on stock exchanges just like regular shares. This level of liquidity offers convenience that physical gold simply can’t match. Whether you’re looking to buy during market hours or sell when prices are high, all it takes is a few clicks.

For instance, if you’re using a Demat account, buying Gold ETFs is as simple as placing a buy order on your trading platform. There’s no need to worry about purity, making charges, or finding a buyer—everything is handled seamlessly through the exchange.

2. No Storage Worries

Physical gold demands secure storage, and safeguarding it can be both costly and stressful. You might opt for a bank locker, but this comes with annual fees and the risk of mishandling or theft. With Gold ETFs, you eliminate the need for physical storage altogether.

Your gold is stored electronically, backed by the equivalent in physical gold held by the fund provider. This means you still benefit from gold’s performance in the market without ever having to worry about theft or loss. For long-term investors, the peace of mind that comes from not having to store physical gold is a major advantage.

3. Lower Costs Compared to Physical Gold

Buying physical gold often incurs additional costs in the form of making charges, wastage, and storage fees. On top of that, there’s the risk of paying for impure gold if you’re not dealing with a trusted jeweller. With Gold ETFs, these concerns are non-existent. You simply pay the price of gold as quoted on the exchange, plus a minimal fund management fee.

According to industry data, the expense ratio for Gold ETFs in India generally ranges from 0.5% to 1%, far lower than the added costs associated with buying physical gold. Over time, these savings can make a significant difference, especially if you’re investing with a long-term perspective.

4. No Worries About Purity

Purity is a major concern when buying physical gold. Whether it’s 22-carat or 24-carat, there’s always a lingering doubt about whether you’re getting exactly what you paid for. In the case of Gold ETFs, this is a non-issue.

Gold ETFs are typically backed by 24-carat gold, and they are regulated by the Securities and Exchange Board of India (SEBI), ensuring that the gold held is of the highest standard. You can rest assured knowing that your investment is in pure gold, and you don’t have to deal with unscrupulous dealers or worry about impurities.

5. Diversification Made Easy

Gold ETFs offer an excellent way to diversify your portfolio without having to worry about the hassles of storing physical gold. Since gold often moves inversely to equity markets, having exposure to it through an ETF can help balance your portfolio during times of market volatility.

For example, during the COVID-19 pandemic, when stock markets worldwide were crashing, the price of gold shot up. Investors who had Gold ETFs in their portfolio saw their overall returns remain steady, thanks to the appreciation in gold prices. This diversification can be crucial in safeguarding your wealth in uncertain times.

6. Tax Efficiency

Gold ETFs are more tax-efficient than buying and selling physical gold. If you hold Gold ETFs for more than three years, they qualify as long-term capital assets and are subject to long-term capital gains (LTCG) tax, which is currently 20% with indexation benefits. Indexation allows you to adjust the purchase price of your ETF for inflation, reducing your overall tax liability.

In contrast, the sale of physical gold attracts taxes that could be higher, and the lack of indexation benefits means you might end up paying more in taxes than you would with an ETF. This tax efficiency makes Gold ETFs particularly appealing for those planning long-term investments.

7. Transparency and Regulation

Another advantage of Gold ETFs is their high level of transparency. The prices of Gold ETFs are directly linked to the price of gold in the market, and this information is readily available to all investors. You can easily track the price of your ETF through your trading platform or financial news sources.

Additionally, Gold ETFs are regulated by SEBI, ensuring that your investment is secure and managed in accordance with strict guidelines. This regulatory oversight provides an added layer of trust, something that’s often missing in the unregulated world of physical gold trading.

8. Suitable for Small Investors

You don’t need to have a large amount of capital to invest in Gold ETFs. Unlike buying a gold bar or a large amount of jewellery, which requires significant upfront investment, you can start investing in Gold ETFs with a small amount of money.

This makes Gold ETFs accessible to everyone, from beginners looking to test the waters with a small investment to seasoned investors who want to add gold to their portfolio without making a large financial commitment. As of 2023, the price of a single Gold ETF unit in India is equivalent to roughly one gram of gold, making it easy for small investors to get involved.

9. Ideal for Long-term Wealth Creation

Gold has long been considered a store of value, especially in India where gold has cultural significance. By investing in a Gold ETF, you can benefit from the long-term appreciation of gold without the risks associated with physically holding it. Historically, gold has outperformed inflation and acted as a hedge during financial downturns, making it an attractive option for long-term wealth creation.

For example, over the last decade, gold has provided an average annual return of around 8% in India. This performance, coupled with the ease of investing through ETFs, makes it a compelling choice for investors looking to build long-term wealth.

10. Convenient for Gifting or Inheritance

Unlike physical gold, which can be cumbersome to transfer or inherit, Gold ETFs make the process much easier. They can be transferred to your heirs with minimal paperwork, and you don’t have to worry about the logistical issues of physically passing on gold. This makes Gold ETFs an excellent option for those who want to include gold in their estate planning without the complications of handling physical assets.

Frequently Asked Questions [FAQs]:

1. Is buying gold ETFs a good investment?

Yes, gold ETFs are a good investment for those looking to diversify their portfolio. They offer the benefits of gold without storage issues and are cost-efficient, liquid, and tax-efficient.

2. How to buy 1 gram of gold in ETF?

You can buy 1 gram of gold in a Gold ETF by purchasing one unit of the ETF through a Demat account on stock exchanges, as one unit typically represents 1 gram of gold.

3. Is gold ETF taxable?

Yes, Gold ETFs are taxable. If held for over 3 years, they qualify for long-term capital gains (LTCG) tax at 20% with indexation benefits, making them tax-efficient for long-term investors.

4. Can we sell gold ETFs anytime?

Yes, Gold ETFs can be sold anytime during market hours through your trading platform, offering high liquidity similar to stocks, allowing you to buy or sell with ease.

5. Can I do SIP in gold ETF?

No, you cannot do a direct SIP in a Gold ETF, but you can invest systematically through Gold ETF mutual fund schemes, which allow periodic investments similar to SIPs.

Final Thoughts

Gold ETFs offer a modern, efficient way to invest in gold that eliminates many of the drawbacks of holding physical gold. Whether you’re a seasoned investor or just starting, the ease of trading, cost-efficiency, and tax benefits make Gold ETFs a smart choice for anyone looking to add gold to their portfolio.

These tips are brought to you by HappyWise Financial Services.

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Disclaimer: Some part/s may be generated/modified using GenerativeAI