Gold Exchange Traded Funds (Gold ETFs)

In turbulent times, gold has shown up as an effective hedge against equities in a portfolio. Though there are many ways in which one can exposure to gold, investing in Gold ETFs stand out because of its many advantages and convenience.

Gold ETF is an Exchange Traded Fund that aims to track the price of gold. Just like how equity shares of a company are bought and sold on the Stock Exchange, Gold ETFs can be bought and sold on the Stock Exchange at the prevailing market price of gold.

How to Purchase: To be able to purchase a Gold ETF, one needs to have a Demat account and a trading account with any broker. Gold ETF’s are traded in units wherein one unit represents one gram of gold.

This means when you buy one unit of a Gold ETF, you are buying one gram of gold and that one unit(gram) of gold will be credited to your Demat account. In case of some Gold ETFs, one unit can represent half a gram of gold. Just like equity shares, you will have to incur brokerage costs when you buy or sell Gold ETF units.

Taxation: If the units of Gold ETF are held for less than one year, then you will have to pay short-term capital gains on such sale. If the Gold ETFs are held for more than one year you can pay either at a 10% tax rate on the gains without indexation or a tax rate of 20% with indexation, whichever is lower.

GOLD ETFs in India: India has the following Gold ETFs as on date:

  1. Birla Sun Life Gold ETF
  2. Goldman Sachs Gold ETF
  3. Religare Invesco Gold ETF
  4. Quantum Gold Fund
  5. SBI Gold ETF
  6. IDBI Gold ETF
  7. R*Shares Gold ETF
  8. Axis Gold ETF
  9. Kotak Gold ETF
  10. ICICI Prudential Gold ETF
  11. UTI Gold ETF
  12. HDFC Gold ETF
  13. Can Gold ETF

 

Gold ETFs are being traded in India since March 2007. Benchmark Asset Management Company Private Ltd. was the first to put in the proposal for gold ETF with the Securities and Exchange Board of India (SEBI). However, that is no longer offered on the exchange.

 

Advantages of Gold ETFs:

(a) An investor can purchase gold in small amounts as one unit of the ETF represents one gram. These small amounts can be accumulated over a period of time.

(b) As the gold purchased is credited to your the account, there are no hassles with respect to storage of gold purchased.

(c) Compared to the purchase of physical gold, there are no worries with respect to the quality of gold purchased.

(d) Gold can be bought and sold at the prevailing market prices with no deductions with respect to making or handling charges.

(e) Compared to physical gold which has to be held for more than three years, Gold ETFs qualify for Long Term Capital gains if held for more than one year.

 

Gold ETFs have become the mode of investment in recent times and have been growing at a rate of over 50%.

 

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