By investing in gold ETFs, investors can invest their money in the gold market without having to invest in the physical commodity. For investors who don’t have a lot of money, gold ETFs offer a flexible means to engage in the asset class and efficiently improve the level of diversification of their portfolios. A gold ETF is an exchange-traded commodity fund that can be used to hedge gold commodity risk or expose itself to gold’s fluctuations.. If an investor has an increased risk to their portfolio assets as the gold price rises, owning a gold ETF can help reduce the risk in that position.
Gold ETFs are similar to mutual funds that are traded on stock exchanges, i.e.. Just like a stock investment fund, where an asset management company (AMC) collects a pool of investors to invest in shares, this is the case here, but with pure gold as the underlying. The AMC allocates units to investors that can then be traded on the stock exchanges.. The price of the ETF correlates with the underlying physical gold and increases the flexibility of investing equities to an age-old simple gold investment.
Basically, buying gold ETFs means buying gold in electronic format.. Each unit of a gold ETF is equal to one gram of gold and has a purity of 99.5%. This physical gold is stored in custodian vaults and serves as an underlying asset from which the units derive value.. There are two methods to invest in gold ETFs. One is the direct route and the second is the passive investment path.
Equity Investments Investments Investors who are familiar with the idea of digital options should understand liquidity, risk, and investment duration requirements, and analyze the pros and cons before investing in gold ETFs.. The key point is a diversified portfolio and to achieve this by investing in gold, it can prove to be a good choice if done with in-depth research and understanding.. Mahendra Luniya is chairman of Vighnaharta Gold Limited. He has more than 20 years of experience in investing on the stock exchange and is an expert in digital gold..
Aashika is editor for Forbes Advisor in India. Her 14-year business and financial journalism has led her to report, write, edit, and lead teams that cover public investment, private investment, and personal investment both in India and overseas. She previously worked at CNBC-TV18, Thomson Reuters, The Economic Times, and Entrepreneur. Gold exchange traded funds (ETFs) are a good investment choice if you find buying physical gold uncomfortable or if you want to diversify your portfolio.
Gold is considered a safe asset, which means that its prices are usually not very volatile.. Gold ETFs allow investors to speculate on gold prices without buying physical gold. The advantage of owning a gold mining company ETF over a gold price ETF is that higher returns can be achieved.. There are several methods to invest in gold..
You can choose to buy physical gold in bullion form, buy gold bonds issued by the RBI, you can also buy e-gold issued by commodity exchanges, or even put your money into gold futures.. One of the benefits of gold ETFs is that they can be held on your regular Demat account and can be bought and sold just like any stock.. Gold ETFs are fairly liquid in India. Another advantage is that gold ETFs are highly regulated, which ensures that investors’ interests are protected at all times..
Apart from these, gold ETFs are usually tax-efficient as they are subject to a long-term capital gains tax with indexation benefits. If a particular country relies solely on gold as a primary source of income, an investor with portfolio assets that pose a risk in that country can sell or short sell a gold ETF as protection. Or if an experienced investor decides to sell gold after extensive research, trading an inverse gold ETF can be an easy way to profit from falling gold prices. Before you dive in, ask an auditor (CPA) how buying gold ETFs will affect your specific tax situation.
While other individual gold mining stocks and precious metal indices exist, a gold ETF can be an easier or more diverse way to invest in gold mining.. As with other types of ETFs, the issuing company buys shares in gold-related companies or buys and stores gold bars itself. A gold ETF offers an investor the opportunity to engage in gold’s performance or price movements. This is a consequence of the previous point, and you can buy and sell gold ETFs on the regular exchange using your existing trading account..
The SPDR Gold MiniShares Trust is a more cost-effective product that was launched by the same investment managers as the SPDR Gold Shares ETF. For example, if an investor wants to work in the gold mining industry, owning a gold ETF can be an investment strategy that fits their portfolio.. If you’re worried about what happens to your money, remember that gold ETFs are regulated by SEBI, and each unit is backed by physical gold.. Gold ETFs are exchange-traded funds that enable investors to invest in gold without having to buy, store and resell the precious metal directly..
He added that investing in gold ETFs eliminates the need to worry about risk factors associated with physical gold, such as theft, purity, illiquidity, and storage costs, as the units are held in a demand account.. This makes it the best gold ETF for those who want to invest in mining companies to play in the gold market..