• HDFC securities
• 11 Jul 2023
• Knowledge Centre

The first-ever gold ETF (exchange traded fund) in India was the Gold BeES, launched in March 2007. Today, this form of investing in the precious metal has gained huge popularity. This is not just because it is a safer alternative to investing in physical gold but also because of the ease of investment. Since a gold ETF is a representation of physical gold in dematerialised form, you can invest in it online in just a few minutes. Tracking the price and performance of your investment is also easy with the availability of price information online.

One unit of a gold ETF in India is equal to one gram of gold. The difference is that while physical gold remains idle till you decide to sell it, an ETF earns for you. Here’s a look at the features and benefits of investing in a gold ETF fund.

Features of Gold ETF in India

These ETFs can be viewed as open-ended mutual funds. They invest your money in the standard gold bullion with 99.5% purity. They are listed and traded on the NSE and BSE, which means you can trade them just like stocks. Here are some more features that are driving their popularity.

·         Liquidity

Buying and selling of ETF units is easy and transparent. As mentioned earlier, you can buy and sell them just like stocks, through your stockbroker, at any time while the stock exchanges are open. These means no hassles of trying to find a shop where you can sell physical gold and then dealing with mark-downs and losing out on making charges, etc.

·         Smaller Denomination

Purchasing gold is a costly affair. India saw a record high on March 21, 2023 where gold prices touched ₹60,000 per 10 grams. When you buy physical gold, you will either need to buy at least one gold bullion, which is 116.64 grams, or gold jewellery, where you will pay additional making charges, which tend to be higher than the broker fee. With ETFs, you can buy just one unit (equivalent to 1 gram of gold) to gain exposure to the gold market. This means you need much lower capital to start your investment journey.

·         Hedge Against Inflation

Gold is considered a “safe haven” investment worldwide. This is because its price is not influenced by currency fluctuations. In fact, when a nation’s currency depreciates or the stock markets become too volatile, people tend to move their investments to gold. So, during times of economic uncertainty, gold price tends to rise due to increased demand. This also makes it a good way to diversify your portfolio and safeguard it against inflation, given that the yellow metal has generated over 60% absolute return over the past 10 years, as of 2023.

Benefits of Gold ETF in India

Investing in gold ETFs in India can be a smart move because the precious metal has intrinsic value and has demonstrated its ability to continue to rise in price regardless of economic conditions. Some of the other benefits of gold ETFs in India are:

1. You trade directly on the NSE or BSE through your broker. The process is incredibly simple with the use of an online trading platform.
2. There is no fear of theft or expense of securely storing gold when you invest in ETFs.
3. You are sure of the purity of the gold you are investing in since ETFs.
4. You get tax benefits because there are no securities transaction or wealth tax applicable. Only ETFs held for more than one year are subject to capital gains tax.
5. You can use your ETF units as collateral when you apply for a loan from a financial institution.

So, go ahead and learn about the various gold ETFs available in India to make an informed choice.