How To Buy Gold ETF
Gold ETFs operate similarly to mutual funds but are traded on stock exchanges, allowing investors to buy and sell units through these exchanges. Read to know more!
At the heart of India's rich cultural heritage, gold holds profound historical significance. Indians, known for their enduring passion for gold, have integrated this precious metal into the very fabric of their traditions. Gold is considered not just valuable, but it also has a deep emotional meaning in Indian culture. The avenues for gold investment in India are as diverse as the cultural landscapes that define its identity. Ranging from gold jewellery, bars, and coins in traditional markets to investment options like Gold Mutual Funds and Sovereign Gold Bond Schemes—each avenue has its own story of wealth preservation and cultural identity.
What is Gold ETF
As far as gold investment instruments are concerned, one standout category is Gold Exchange Traded Funds. Gold ETFs operate similarly to mutual funds but are traded on stock exchanges, allowing investors to buy and sell units through these exchanges. Much like an equity mutual fund, where an asset management company or AMC gathers funds from investors to invest in shares, the same principle applies here, but with gold as the underlying asset. In simpler terms, purchasing gold ETFs is equivalent to acquiring gold in electronic form.
This kind of investment offers flexibility and is traded on stock exchanges like a regular stock, allowing investors to buy and sell shares easily. This blog embarks on a journey to reveal secrets and insights that position Gold ETFs as a noteworthy player in the world of Indian gold investments.
How Gold ETF Works
In Gold ETF investment, investors buy shares in the ETF, which represents a portion of actual gold held by the fund. The ETF's value rises and falls with the price of gold. It provides a way for investors to gain exposure to gold without physically owning it.
Each part of a Gold ETF shows one gram of gold with high purity. The actual gold is kept safe in banks' vaults, and it's the basis for the value of the ETF units. The price for each unit is close to the price of 1 gram of gold. Different funds let people buy and sell Gold ETFs.
How to purchase Gold ETF online
To buy Gold ETF in India, you need to follow these steps.
- First, open a Demat and trading account with a registered stockbroker.
- Once the account is set up, transfer funds into it.
- Next, log in to your trading account and search for Gold ETFs available on the stock exchange. Choose the Gold ETF you want to invest in and place a buy order specifying the number of units you wish to purchase.
- Confirm the order and monitor your investment through your trading account. The purchased Gold ETF units will be credited to your Demat account.
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How to buy Gold ETF in India
There are two ways to invest in Gold ETFs: the direct method and the passive approach. In the direct method, you need to open a demat account through a stock broker to buy Gold ETF. Once that's done, similar to purchasing shares, you can buy units of gold ETFs directly through the stock exchanges.
If you prefer not to invest in gold ETFs through a demat account, you can opt for gold funds that indirectly invest in gold ETFs. Many investors find this option convenient or easier to understand, especially if they are familiar with mutual fund investments through an app.
Is Gold ETF a good investment
Investing in Gold ETFs comes with several advantages.
- Firstly, the flexibility to enter and exit at will on highly liquid stock exchanges allows for quick and responsive trading.
- Unlike physical gold, there are no storage charges or risks of theft, providing a secure investment avenue. Buyers require a Demat account, ensuring a streamlined and digital trading process.
- Gold ETFs prove to be tax and cost-efficient, minimizing financial burdens. With seamless transactions and the absence of entry and exit charges, investing in Gold ETFs offers a convenient and hassle-free way to participate in the gold market.
Things to remember before Investing in Gold ETFs
If you are considering investing in Gold ETFs, you need to know certain answers that will help you decide better in terms of investment.
- Considering gold's historical annual returns typically around 10%, it's more suitable for short to medium-term investments.
- When selecting a Gold ETF or Fund Manager, don't solely focus on low fees; assess recent performance for effective management.
- Allocate 5–10% of your portfolio to maintain stability and consistent returns. Given brokerage fees of 0.5–1%, explore the market for reasonable options.
- Monitor your Gold ETF account regularly for portfolio effectiveness. SEBI regulates Gold ETFs, ensuring each unit is backed by actual gold.
- Watch gold price trends before transactions, buying low and selling high for potential gains, similar to stocks.
Investing in gold ETFs in India offers income through returns and the potential to serve as loan collateral, unlike owning physical gold. This positions gold ETFs as a wise investment choice, especially for those aiming to protect their portfolios. Once you grasp these fundamentals, it's advisable to allocate a portion of your portfolio to gold ETFs.
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