What is Gold ETF Fund?

by Tanisha Chabra
29 May 20246 min read
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What is Gold ETF Fund?What is Gold ETF Fund?
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Mutual fund investments have opened up new avenues for achieving financial independence, expanding beyond the confines of traditional employment and entrepreneurship. 

Among these avenues, gold ETFs shine as a particularly smart investment choice, offering not only the potential for attractive returns but also a secure future for your loved ones.

In this article, we will understand what gold ETFs are, a closer look into their working, and also understand the benefits of investing in them. Keep reading to find out more!

What are Gold ETF Funds?

A Gold ETF fund is a popular investment instrument that is a type of exchange-traded fund that aims to track the physical gold prices in domestic markets. Gold ETF funds, similar to other ETFs are traded on stock exchanges like individual stocks. It is a type of investment that enables you to invest your money in pure gold. 

But how do these Gold ETFs serve as an alternative to physical gold? Gold ETFs are backed by actual gold kept with are stored with the funds’ custodian. Each unit of a Gold ETF represents physical gold in dematerialized form. 

These fund investments are listed on the National Stock Exchange of India and Bombay Stock Exchange Ltd like a stock of any particular company. It is a safe investment option because it addresses concerns that investors may have with physical gold concerning storage and theft. This allows investors to take advantage of the benefits that gold comes with like stability in times of uncertain market conditions. 

How does Gold ETF Work?

A Gold ETF fund working process is simple as it monitors physical gold’s price in domestic markets. Gold ETFs are backed by actual gold and their prices are connected with the physical gold price. A futures contract that tracks the price of gold can be used as collateral for the ETF shares that investors buy. Alternatively, the shares may reflect actual gold holdings. 

As these Gold ETFs are traded on the stock exchange, they are easily accessible and are liquid as they are traded on stock markets. The value of a share is based on the current market price of gold and usually represents a fraction of an ounce of the metal.

The reduced transaction costs associated with gold ETFs as compared to the making charges and storage of real gold are among its main benefits. Additionally, they have a high liquidity level, which enables investors to purchase or sell shares as fast as needed. 

Why You Should Invest in Gold ETF Funds?

Now that you have understood what a gold ETF is and its functioning, let’s have a closer look at its advantages:

  • Easy Trading

Buying and selling units of a Gold ETF is an easy trading process that is ideal for both beginners and expert traders. You can easily buy and sell gold ETF funds just like other investment securities. These funds are listed on different stock exchanges to make it easy for people to invest in them. You can have more transparency and accuracy as gold prices are openly measurable in stock exchanges. If you were to head to the Rupeezy app, you could search for a range of Gold ETFs just like any other stock. 

  • Diversification

Investors can diversify their risk through the Gold ETF Funds easily. Diversification is an integral element of investment and Gold ETFs offer you the benefits of investing in gold which can complement your stock portfolio. You can easily diversify potential risks in different investment securities to lower the impact on your returns in times of market uncertainty. 

  • No Additional Charges for Entry and Exit

Gold ETFs also do not charge you extra for your entry and exit into the fund. Many investment securities have charges associated with the buying or selling of your securities. 

  • Low Market Risk

Gold ETF fund investment is a low-risk investment option that ensures an attractive return on your investment. It offers low market risk as we all know physical gold prices in the domestic market don’t fluctuate under normal circumstances. It removes any major risk of price variations when the market is unstable. It enables investors to prevent any huge loss even if the ROI is lesser than its margin.

  • No Making Charges and Risk of Impurity

Investing in Gold ETF funds does not involve buying actual gold bars or jewelry. You’re investing in a gold fund instead. This implies that you won’t need to be concerned about the price of converting gold into jewellery or the potential for contaminants in the gold you buy. All you are doing is investing in the inherent worth of gold, free from the burden of physical possession.

Also Read: Best Gold ETF in India

How are Gold ETFs Taxed?

If you purchase Gold ETFs or Gold Savings Funds before March 31, 2023, they are taxed as physical gold. If Gold ETFs are held for 36 months or more then they are taxed as long-term assets. Any profits earned from selling them after this period are considered long-term gains and are taxed at a flat 20% rate after indexation.

The same is true for gold coins, bars, and jewellery; if held for 36 months or more, they are considered long-term assets. However, if you purchase Gold ETFs or units in Gold Savings Funds after March 31, 2013, the rules change. 

Any profits from selling them, regardless of how long you’ve owned them, are considered short-term gains. This is similar to how tax is handled for bank fixed deposits; however, you only pay tax when you sell or redeem your investments.

How have Gold ETFs Performed in the Past?

Gold ETFs have had varied performances in the past. These have been affected by factors like economic conditions, geopolitical events, and how investors feel about the market. If we take a look at the performance of gold ETFs over the last 5 years they have ranged between 14-15%. The table below shows the performance of the top Gold ETFs in India. 

Gold ETF Name
Corpus (? in Cr)
5 Year Return (CAGR)
Nippon India ETF Gold BeEs 
8,929
14.1%
4,845
14.2%
4,118
14.4%
3,761
14.3%
3,261
14.4%

(Source: Moneycontrol)

Wrapping Up 

Investing in a gold ETF fund provides a safe and profitable opportunity for investors of all skill levels, from beginners to seasoned professionals. One of its primary benefits is the elimination of concerns about the storage and security of physical gold, as all transactions are carried out electronically. 

This digital process not only makes things easier and more convenient, but it also protects your investment against theft or loss. Furthermore, purchasing and selling investment securities through a gold ETF is a simple process that incurs no additional fees during entry or exit. If you wish to leverage the advantages of some of the best Gold ETFs, head to the Rupeezy app which also offers a range a Gold ETFs for you to choose from. Happy Investing!

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