Gold exchange traded fund schemes are popularly known as Gold ETF. It is a convenient way of buying gold just like you purchase shares from any stock broker. You need to have a demat account and trading account with any stock broker in India to invest or trade in gold exchange traded fund schemes. Minimum buying quantity of purchase or sale will be in multiples of 1 unit. One Unit of Gold ETF is equal to the price of 1 gram of gold in Indian market. The objective of Gold ETF is provide returns on investments similar to domestic gold prices. You can accumulate gold by buying in multiples of just 1 gram.
Important advantages of investing in gold exchange traded fund schemes
* All purchased units of gold exchange traded fund schemes are credited to demat account directly. So there is no problem of theft, impurity. Also no need of paying locker charges to safeguard investments in gold exchange traded fund schemes. ( You many need to pay Annual Maintenance Charges of Demat Account)
* Ease of buying and selling on stock exchange just like shares. Transparency in pricing as they are traded on stock markets. Iarge investors who wish to buy atleast the size of unit creation size (usually 1Kg) can directly transact with concerned mutual fund house.
* Highly tax efficient as no need to pay Securities Transaction Tax (STT), Sales Tax, Wealth Tax or VAT on investments in gold exchange traded fund schemes (Gold ETF)
* Uniform price for buying or selling anywhere as these are traded on stock exchanges.
* No premium while buying and discount while selling which is followed by most of the physical gold sellers. Banks and most of the jewelers just sell gold coins or bars but do not buy back them at same price.
* Benefits on long term capital gains.
* Can track the value of investments in real time as the price of Gold ETF is available on stock exchange websites / stock brokers offices in real time.
Points to consider before investing in gold exchange traded fund schemes
Although investments in gold exchange traded fund schemes is a good option to invest in gold as a proxy investment, some points need to be considered.
– While many mutual funds offer Gold ETF for investment, some are not very liquid and selling or buying in them have high impact cost. See the table below (Data is from nseindia as on 22 Feb 2013)
– You must purchase gold in multiples of 1 gram and may not be feasible for small investors who wish to invest small amounts in gold.
– You can only redeem physical gold in multiples of 1Kg from mutual fund house. Any units below 1Kg (1000 Units) need to be sold on stock exchange.
– For Small investors, Annual Maintenance Charges on Demat account might be high. Although no premium need not paid on gold value, still brokerage charges and other applicable taxes need to be paid by the investor.
– Returns on investments in gold exchange traded fund schemes may not exactly match with returns in domestic gold prices as mutual funds do not invest upto 5% of assets for liquidity needs.
Are you an investor who wish to invest a fixed amount every month to accumulate gold for long term needs? Do you find investment in gold exchange traded fund schemes is not a feasible solution?
You can consider investing in Gold Mutual funds through Systematic Investment Plan (SIP). You can start investing with as low as 100 rupees (For most funds it is 500 or 1000). You may like to use Gold SIP Calculator to find out how much SIP you need to do every month to accumulate required amount of Gold or to calculate how much Gold you accumulate with a fixed monthly SIP