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Gold ETF: Smart investment in Gold

Gold Exchange Traded Fund




Hello readers,

We Indians, specially women love gold. Our cultural functions are opportunity for women to show off their gold jewelry. Most of people think invest in gold is safe and give good returns. But it is not true because your 'making charges' eats your returns. You are paying 10 to 15 % amount as 'making charge' on every time  when you purchase gold. In long run you make get some returns on gold but it will so less as we consider time period. In Fintech (new tech that seeks to improve and automate the delivery and use of financial services)  era, it is very simple to invest in pure gold without paying 'making charges' and get attractive return by investing in gold.


Investment in Gold Vs. Equity- 



As we see above image we identified how we get low returns when we invested in gold rather than equity. I am not suggesting that, you should not to invest in gold but suggest way to invest in gold as smart investor. You should invest some amount in gold for the purpose of diversification and also 'trust' factor mostly in favor of gold over all other instruments.



Methods of investing in gold shown in below picture-



Above image showing methods of investing in gold. Most commonly people choosing 1st method means directly buying physical gold. But it is not a smart method. In current era, Gold ETF is a smart way to invest in gold. Read below for knowing whats is ETF.


ETF(Exchange Traded Fund)-

An ETF called an exchange traded fund since it's traded on an exchange just like stocks. This is unlike Mutual funds, which are not traded on an exchange, and trade only once per day after the markets close. 
In case of Gold ETF the underlying asset is gold. As the name indicates Gold ETFs are open-ended mutual fund schemes that will invest the money collected from investors in standard gold bullion (0.995 purity). The investor’s holding will be denoted in units, which will be listed on a stock exchange. Normally we have a common understanding that mutual funds invest only in Equity shares only but that is wrong. Mutual funds also invest in Gold and Bonds.


Advantages of invest in Gold ETF rather than physical gold


Making Charges:If you are buying physical gold in the form of ornaments and jewelry than you have to pay 10 to 20% additional by way of making charges. If you are buying gold for investment purpose or accumulating for marriage of your children, I would never suggest you to buy in the form of ornaments or jewelry because there you have to pay making charges of around 10 to 20%. You should buy ornaments only when you are buying it for personal consumption and use.

Purity of Gold: When you are buying physical gold, purity of gold is always in question and this has an impact at the time when you sell it. So if the purity level of gold is low, the buyer will pay less for the same.

Risk during Transition: For Physical Gold, there is always risk of theft at the time of moving it from one place to another or at the times it is stored. But for Gold ETF, it is taken care of by fund.

Demat Account : Gold ETF units are stored in your demat account so for buying Gold ETF, demat account is required but even if you don’t have demat account you can invest in funds which are investing in Gold ETF. Whereas in physical form of Gold demat account is not required.

Tax Implications: As you can see in table above sale of physical gold qualifies for long term capital gain only after 3 years whereas sale of Gold ETF qualifies for long term capital gain after one year. So this helps to minimize your tax liability.
For Wealth tax purpose, Physical Gold attracts wealth tax where as Gold ETF is exempt from Wealth Tax.

Pricing: Pricing of physical gold is not uniform normally whereas, Gold ETF follows international prices.



Which ETF available on Indian exchanges for buy and sell?

Click Here to see all ETF which available on NSE(National Stock Exchange) 

Below are some ETF which gave good returns in past.


1. UTI ETF-  

Fund Type ETF Funds                                              Inception April 17, 2007

Risk Metric Moderately High

Returns as of 30 Nov 2019
1 Year 24.46%                                                                    3 Year 8.13%

NAV:  ₹ 3,412.20                                                               as of Dec 24, 2019

Fund Manager
Rajeev Gupta
Executive Vice President at UTI AMC Ltd.


2. HDFC ETF-

Fund Type ETF Funds                                            Inception  Aug 2010

Returns
1Y return  20.78%                                                             3Y return  10.53%

NAV:  ₹ 3460.9965 

Fund Manager
Krishan Kumar Daga
Inception Date 13 Aug 2010       


3. KOTAK ETF-

Fund Type ETF Funds                                              Inception  Jul 2007

Returns
1Y return  21.69%                                                          3Y return  10.36%

NAV:  ₹ 337.925

Fund Manager
Mr. Abhishek Bisen


Be smart and invest your hard earn money wisely. Don't fall in trap of who showing huge profits in too short time period. Remember empire are not built over a night. Patience will pay off to you in huge. 

Thank you.



Mayur Jagtap

Investment Consultant.
My Capital Choice




For regular and daily small update 





Sources:- NSE website, Moneycontrol, UTI, KOTAK, HDFC, http://ascentsolutions.in/wordpress/?p=462  

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