Its Diwali season again and you may be looking to add to your prosperity by buying in to the auspicious yellow metal – gold. Or you may choose the occasion to kick start the wealth building process for your child’s future. Whichever way, why not do it a little differently this time? If you are buying gold, consider buying them in electronic form instead of its physical form, through gold ETFs and gold fund of funds.
Here’s how holding gold in e-form may be a superior investment option for you:
Convenience
Gold ETFs can be bought easily as they are traded in the stock exchanges. As one unit of ETF represents a gram of gold, you can buy small quantities with purity assured at 99.5 per cent. As you do not have the gold in physical form with you, you need not worry about its security or the cost incurred in safe guarding it in lockers. Also, its price does not vary from state to state; as is the case with physical gold. Gold ETFs are also accepted as collateral for loans.
Tax benefits
Gold ETFs do not suffer value added tax (VAT) or wealth tax. Also, any sale after one year is treated as a long-term capital gain and indexation benefits can be claimed. In any form of physical gold, only a three-year holding would qualify for long-term capital gain benefits. More importantly, unlike other transactions in the stock exchanges, gold ETFs do not suffer securities transaction tax (STT) as they are classified as mutual funds. You incur only brokerage charges (lower than trading in equities) and a fund management fee of about 1 per cent (lower for gold funds of funds).
Transaction and costs
Unlike physical gold, where you incur making charges or wastage charges when you buy or sell them, gold ETFs can be sold at transparent price in the market.
If you held gold coins or bars, your jeweler will mostly allow only an exchange offer and not pay you cash. ETFs enable you to exchange your units for cash.
Even if you wish to accumulate gold over a period for a future goal, ETFs come in handy. Let us suppose you wish to buy gold for your daughter’s wedding. If you sell the jewellery accumulated over the years and buy new trendy ones that your daughter would prefer, much of the value would be lost in wastage and so on. But if you sell ETFs that you had accumulated, you would broadly get the market value of gold in cash, enabling you to buy the jewels. If you are a High net worth individual and hold at least a kilogram equivalent of gold ETFs, then you may well exchange it with the AMC for physical gold if you wish to.
How to buy
If you have a demat account and wish to make lump sum purchase of gold ETFs then you can buy them through your broker. But you cannot run SIPs in gold ETFs through most trading platforms or through the funds house offerng the ETF (FundsIndia, though, offers this SIP feature to investors in its equity platform). Also ensure that there is enough liquidity in the ETF that you buy. Goldman Sachs Gold ETF, Kotak Gold ETF and Quantum Gold have reasonable liquidity.
If you do not have a demat account or wish to buy small quantities over long periods then gold funds of funds will fit your need. Funds such as Reliance Gold Savings, HDFC Gold, Quantum Gold Savings and Kotak Gold offer gold mutual fund schemes. They invest your money in gold ETFs.
Besides, single investment option, these fund of funds also have SIP options and allow you to buy small amounts over longer periods, on an auto pilot mode, by direct debit to your bank account.
Start the season with electronic gold!
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Thanks for a useful article. Could you cover the eGold option provided by NSEL in a later article? There are definite differences between Gold ETF and eGold in benchmark rates, factors affecting the NAV, maintenance charges, capital gain taxation, etc.
It would be great if there is a lucid article comparing eGold and Gold ETF.
quite informative article.
ICICIDirect does offer daily/weekly/Monthly SIP for Gold ETF
Hi Vidya,
Can gold be part of a conservative portfolio? If so, what is the ideal percentage of gold in a conservative portfolio?
Regards
Gabbar
Hello Gabbar, Gold is no longer a safe haven and hence by conservative if you mean no downside, gold will not fit the bill. Still, in high inflationary scenarios hold is a good hedge. Hence, if you have a long-term time frame and do not mind intermediate volatility, then SIPs up to 10-15% of one’s portfolio should do. Thanks
1. Can you please share some thoughts on Gold ETF vs. Gold fund. I have a long term view of 5-10 years, want to invest in gold (ETF/Fund) for around 10% of my portfolio with a purpose of accumulating gold equivalent which I can use in future. I already have a MF a/c from FI & applied for a DMAT a/c too. So, I can invest either in ETF or in Gold fund, but just want to get a pros & cons of these two investment routes.
2. And to start my investment, is it the right time or shall I wait for the gold price go down a bit. For SIP, I guess any time is good time, but if I want to invest an additional small lump sum to start my investment, is it the right time?
Thanks,
Hello Rahaman, You can go with gold ETFs. At FundsIndia gold ETFs too can be bought systematically. As for timing the lump sum, I am afraid it is very tought to give a level to enter, given plenty of uncertainties globally, as far as US tapering goes. Unlike equities, gold does not have any underlying fundamentals and we do not have a fundmental view on gold. If you have a lump sum, I would still suggest you put them in liquid funds and earn better returns and then consider transferring them systematically to a gold fund. of course, in this case, you will have to use a gold fund (to enable toe systematic transfer). thanks, Vidya
Hello .i’m willing start my investment. but i am confusing on which product i want have investment.and also on what time i can invest.. which is better i want to have information can you kindly get me know about it please
Thanks
hello manju,
Do read this article: https://blog.fundsindia.com/blog/mutual-funds/fundsindia-strategies-how-a-young-investor-can-build-a-mf-portfolio/3258
Also, once you open your free FundsIndia account, our advisors will not only help you build a portfolio but review it as and when you need. we also have ready-made solutions for various life goals, where the portfolios will be monitored by us. Do note that these are free, value add services. thanks, Vidya Bala
respected madam ..
gold etf or gold fund is better.. can u suggest me which is better.. and kindly help me out with company to invest in …i want to invest in gold .. u can reply on my email id as i will feel comfy with it.. friktion602@rediffmail.com
Hi Prashant, Our advisor will mail you with regard to this. In future, since you have a FundsIndia activated account, you can used the ‘Ask Advisor’ tool (click help tab and you will see it) to email your queries on mutual funds/portfolio advice or schedule a call back from our advisor. It is a free service. Thanks.
respected madam ..
gold etf or gold fund is better.. can u suggest me which is better.. and kindly help me out with company to invest in …i want to invest in gold .. u can reply on my email id as i will feel comfy with it.. friktion602@rediffmail.com
Hi Prashant, Our advisor will mail you with regard to this. In future, since you have a FundsIndia activated account, you can used the ‘Ask Advisor’ tool (click help tab and you will see it) to email your queries on mutual funds/portfolio advice or schedule a call back from our advisor. It is a free service. Thanks.
Hi have to invest 30000pa for my daughter and wants risk free and good refund option.please suggest.
Hello Ravindra, thanks for posting your query here. If you are investing for the long-term you should consider a combination of equity and debt instrument for inflation-beating returns. We do not know what is your time frame or whether you intend to invest regularly etc. If you have any FundsIndia ccount, pl. use our ‘As Advisor’ feature to help us choose investments. This service is free of cost. Our advisory services our available to all our investors. thanks, Vidya
Thanks for a useful article. Could you cover the eGold option provided by NSEL in a later article? There are definite differences between Gold ETF and eGold in benchmark rates, factors affecting the NAV, maintenance charges, capital gain taxation, etc.
It would be great if there is a lucid article comparing eGold and Gold ETF.
1. Can you please share some thoughts on Gold ETF vs. Gold fund. I have a long term view of 5-10 years, want to invest in gold (ETF/Fund) for around 10% of my portfolio with a purpose of accumulating gold equivalent which I can use in future. I already have a MF a/c from FI & applied for a DMAT a/c too. So, I can invest either in ETF or in Gold fund, but just want to get a pros & cons of these two investment routes.
2. And to start my investment, is it the right time or shall I wait for the gold price go down a bit. For SIP, I guess any time is good time, but if I want to invest an additional small lump sum to start my investment, is it the right time?
Thanks,
Hello Rahaman, You can go with gold ETFs. At FundsIndia gold ETFs too can be bought systematically. As for timing the lump sum, I am afraid it is very tought to give a level to enter, given plenty of uncertainties globally, as far as US tapering goes. Unlike equities, gold does not have any underlying fundamentals and we do not have a fundmental view on gold. If you have a lump sum, I would still suggest you put them in liquid funds and earn better returns and then consider transferring them systematically to a gold fund. of course, in this case, you will have to use a gold fund (to enable toe systematic transfer). thanks, Vidya
quite informative article.
Hi have to invest 30000pa for my daughter and wants risk free and good refund option.please suggest.
Hello Ravindra, thanks for posting your query here. If you are investing for the long-term you should consider a combination of equity and debt instrument for inflation-beating returns. We do not know what is your time frame or whether you intend to invest regularly etc. If you have any FundsIndia ccount, pl. use our ‘As Advisor’ feature to help us choose investments. This service is free of cost. Our advisory services our available to all our investors. thanks, Vidya
Hi Vidya,
Can gold be part of a conservative portfolio? If so, what is the ideal percentage of gold in a conservative portfolio?
Regards
Gabbar
Hello Gabbar, Gold is no longer a safe haven and hence by conservative if you mean no downside, gold will not fit the bill. Still, in high inflationary scenarios hold is a good hedge. Hence, if you have a long-term time frame and do not mind intermediate volatility, then SIPs up to 10-15% of one’s portfolio should do. Thanks
ICICIDirect does offer daily/weekly/Monthly SIP for Gold ETF
Hello .i’m willing start my investment. but i am confusing on which product i want have investment.and also on what time i can invest.. which is better i want to have information can you kindly get me know about it please
Thanks
hello manju,
Do read this article: https://blog.fundsindia.com/blog/mutual-funds/fundsindia-strategies-how-a-young-investor-can-build-a-mf-portfolio/3258
Also, once you open your free FundsIndia account, our advisors will not only help you build a portfolio but review it as and when you need. we also have ready-made solutions for various life goals, where the portfolios will be monitored by us. Do note that these are free, value add services. thanks, Vidya Bala