Benefits of Buying a Gold ETF

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Benefits of Buying a Gold ETF

Indians love their gold. The precious yellow metal has been a part of Indian customs and traditions for a pretty long time. Gold is not just cherished and worn as an ornament; it also bought and sold and traded as a commodity in the market. However, there are several factors that make possessing physical gold an expensive deal. Owning physical gold requires you to store it in a bank safety vault which comes at a cost, there are making charges involved when you buy gold in the form of jewellery, and there is always a question about the authenticity of gold.

However, if you are a gold lover or love to possess or trade in gold, there is a modern gold purchasing option in the form of a gold exchange traded fund which you can consider. Ever since it was introduced in Indian markets, gold ETFs have gained wide acclamation as an alternate investment option for buying gold among investors of all age groups. A Gold Exchange Traded Fund (ETF) is physical gold dematerialized which investors can purchase online, and its units are traded at the stock exchange.

If you wish to find out more about gold ETFs and who one can consider investing in them, read further:

What are Gold ETFs?

Gold ETFs invest money in gold bullion and gold manufacturing companies by trading their units on the stock exchange, just like any other stock or share. Securities and Exchange Board of India or SEBI, the regulatory body of ETFs and mutual funds, in general, describe gold ETFs as, “an open ended scheme which replicates/tracks the particular index. Of the total assets, this fund must invest a minimum of 95 per cent in securities of a particular index (which is being replicated or tracked)”.

Reasons to invest in gold ETF

Investing in gold exchange traded funds has its own merits, and here are some benefits of investing in them:

Gold ETFs are better than the physical goal: The best part about owning gold ETFs is that you do not have to worry about its security. Gold ETFs are owned in electronic format, making them theft averse and completely secure. In the case of physical gold, one always worries about keeping it inside the house and usually have to rent a safety vault for its security. Also, since gold ETF’s are nonphysical, there are no making charges involved either. All these things make them a better investment than physical gold.

Gold ETFs offer high liquidity: Just like most mutual funds, gold ETFs are open ended funds and do not come with a lock in period. This means that you can redeem your ETF units any time as per your requirement. There is no obligation of holding on to your funds, and ETF holders can liquidate their funds on any business working day.

Gold ETFs are passively managed: Gold ETFs funds do not involve the active participation of the fund manager. That’s because usually, the investment objective of a gold ETF fund is to track its underlying index with minimal errors. This means no active involvement of the fund manager, making gold ETFs cost effective as compared to actively managed funds.

Investors do not have to worry about authenticity: Gold ETFs invest in a commodity that meets international gold standards. The international hallmark category of gold is considered to be 99.5 per cent pure. This is why gold ETF holders do not have to worry about the purity or authenticity of gold, and can invest in them without having any trust issues.

So if you are planning to buy gold this year, will you be going the traditional way or buy gold ETFs? No matter what you choose, make sure that your investments align with your risk appetite and help you in reaching your ultimate financial goal.