Gold ETFs are exchange-traded fund which can be bought and sold on the stock exchange; thus, you don’t need to keep physical gold. The price of gold ETFs is less than the actual price of gold, but the benchmark of the price is the same because the price of both is close. The buying and selling of gold ETFs are much easier than buying gold jewelry, bar, and coins. Moreover, there is no need to worry about keeping it safe.
Things you should keep in mind before investing in Gold ETFs
There are things which you should keep in mind before investing in gold ETFs. These are:
1. Gold ETFs is just another option to invest in gold
There are many ways you can invest in gold, buy physical gold or buy gold bonds issued by Reserve Bank of India or you can invest your money in e-gold that is issued by commodity exchange, or put your money in gold futures. But gold ETF’s advantage is they are nearly liquid in India and can be bought and sold anytime like shares and can be held in your regular Demat account.
2. Gold ETFs price fluctuates as per the price of physical gold
The price of gold ETFs depends upon the price of physical gold, if the price of physical gold goes up, the price of gold ETFs will also go up and vice versa. No other factors impact their price.
3. Gold is more a hedge and works best in time of global uncertainty
Unlike other share market or investment which most likely goes down during an economic crisis, the price of gold increases. During the world war, the price of gold increased 25 times its actual price then. Time and again, it’s seen that gold investment is a good way to store your money and get it during the time of uncertainty like COVID-19 probably will.
Gold ETFs are considered as a hedge. When you buy shares, you become a part of the company. But in case of gold, you can, but it sells it during a crisis or when you need money.
4. Taxed under Capital Gains
Gold ETFs are treated as an asset and is a tax under capital gain just like any other asset you own. The difference is gold ETFs are treated as non-equity investments and are treated in that way. The definition of short term rather being 1 year is 3 years in this situation. After providing the indexation after 3-years it will be taxed at 20%.
5. Security Transaction Tax (STT) is not applicable
STT is imposed on equity since gold ETFs are classified as a non-equity product; it does not impose this tax. This improves the yield of redemption in gold ETFs.
There is no upper limit or lower limit for purchase, you can buy in a lump sum, or you can buy a smaller amount during intervals with a Systematic Investment Plan (SIP). You can even buy as little as 1gm gold.