Undertand Why Gold ETF is Worth an Investment?

Last Updated : June 2, 2016, 8:01 a.m.

Exchange Trade Funds (ETFs), categorized under open-ended mutual funds, get listed and traded like stocks on the stock exchanges. The trade of ETFs, which include stocks, commodities or bonds, is done close to its NAV in a particular trading day. Besides being low cost and a tax-efficient option, ETFs go through regular change in their prices due to frequent trading on the stock exchange. Thus, ETFs become a highly liquid product. With ETFs, you own underlying assets such as stocks, foreign currency, etc. The assets, which are divided into shares, become the property of the shareholders who make profits by earning interest and receiving dividends. The shareholders also become eligible for the value that the ETF will get upon its liquidation. You can easily transfer ETFs as these are frequently traded on public stock exchanges. This was all about the ETFs in general. Now get down to the ‘Gold ETF’ as mentioned in the title.

Gold ETFs

Gold ETFs refer to a mechanism by which you can get involved in the gold bullion market. The investment in Gold ETFs gets converted into papers without any physical delivery of the yellow metal. Like shares, you can buy or sell Gold ETFs on the stock exchanges. The price per unit of the Gold ETF is equivalent to 1 or sometimes even half a gram of the yellow metal on the day of allotment. Gold GTF value depends on the prices of the yellow metal. As gold prices surge, the ETF value will rise and vice-e-versa.

How do gold ETFs work?

Based on the cost of gold per gram during the allotment, the amount of money you would like to invest in Gold ETFs will determine the quantity of units that will be allocated to you. For instance-your overall investment fund amount is Rs 30,000 and on a certain date, the per gram price of gold is Rs 950, then the number of units that will be allocated to you is 31 (approx).

Advantages of Gold ETF investment

• Seamless trading on stock exchange
• Easy and quick transaction through demat account
• Transparent pricing
• You can hold the asset via electronic form

What do you need for Gold ETFs?

You are required to open a demat and trading account with a stock exchange broker in order to invest in Gold ETFs.

Taxation

Treated as mutual funds, Gold ETFs are taxed on the basis of non-equity mutual fund norms. Gold ETF investors will have to pay tax subsequent to the redemption of the units. However, tax redemption here is similar to the taxation rules applicable for the physical gold.