Benefits of buying Gold ETF this Festive Season

Published On: 06-Dec-2019

A diversified investment portfolio holds the key to long term financial prosperity. The investors must plan to allocate their investments across different asset classes such as equity, debt, gold, etc. Since the investors don't rely on a single asset class for their portfolio performance, the returns may be expected to be stable across market cycles. While equity renders the potential of higher returns over the long term, the debt investments may impart with stability to the portfolio. 

 Invest in Gold ETF

In India, investors have an affinity for buying gold. Gold is considered a hedge against inflation, protecting the purchasing power of the money invested across periods. As such, the investors may expect the investments in gold to absorb market volatility during the times of correction. 

With the evolution of financial markets, investing in gold is not only limited to buying gold jewellery or buying physical gold bars, but the investors may also choose to  buy Gold ETF units and generate similar returns through investment in Gold ETFs. 

What is the Gold ETF?

Gold ETF (Exchange Traded Fund) is an investment product, which creates an investment portfolio of physical gold through the money invested and generates returns in sync with the movements in international gold prices. 

Benefits of Investing In Gold ETF

Investors may avail the following benefits by investing in Gold ETFs, especially when compared to the physical gold:

1.Easy Investing :

The investors may make investments in gold ETF over the stock exchanges on a real-time basis during the exchange trading hours. 

2. No storage costs :

Gold ETF units may be held in digital form in the demat account of the investors. As such, the investors need not incur any additional storage costs for their gold investments. 

3. Transparency in ETF Valuation :

The valuation of ETF units replicates the gold price movements in the international markets. Further, the investors may check the real-time valuation of the ETF units on the stock exchanges and further trade at similar rates through stock exchange mechanism. This benefit allows the investors to liquidate the investments at market rates. This is a significant advantage of investing in gold ETF, as compared to physical gold, as the trades in physical gold happen as per the price offered by the jeweller, which may not be in sync with the market rate. 

4. Better Liquidity :

The investors may liquidate their investments even with a click of the mouse by placing a sell order through the stock exchanges during the trading hours. Once the sell order executes, the ETF units are transferred from the demat account, and the investor receives the sale amount, net of transaction costs in a time-bound manner. 

5. No-Risk of Impure Gold :

When one invests in physical gold, the risk of getting impure gold is a significant one. However, when one invests in Gold ETFs, the underlying investments are made in the hallmarked gold, thereby eliminating the risk of underlying investment in impure gold. 

How to Invest in Gold ETF?

It is easier to purchase Gold ETF units; as it is traded on stock exchanges just like other ETF products. The prices, along with the market depth for buy-sell orders for ETF units, may be seen by the investors on the stock exchanges on a real-time basis. As such, investors may choose to invest in Gold ETF units at specified prices. However, the investment happens only when a sell order matches the buy order at the same price. 

Once the trade happens, the Gold ETF units get transferred to the demat accounts through stock exchange clearing mechanism. Such ETF units continue to be stored in the demat account unless the investor opts to liquidate the investments. Such liquidation is also required to be done only through the stock exchanges.