What is Gold ETF? Why & When to Invest | Experts’ Analysis

Gold Exchange-Traded Funds (ETFs) have been the focus for investors as innovative means of investment in gold without physically holding metal. Gold ETFs in India are units of a fund that invests in physical gold, typically 99.5% purity, held securely by fund managers. One unit is typically equal to one gram of gold. You can purchase or sell such units on stock exchanges such as NSE and BSE through your demat account, similar to stocks.

Why Invest in Gold ETFs?

Gold ETFs offer a number of benefits compared to physical gold investments like jewellery or coins. The main advantages are:

• Safety and Convenience: No more worry about theft, purity, or storage complications, all of which are associated with physical gold.
• Liquidity: You can purchase or sell Gold ETFs with ease during trading hours at fair market prices.
• Cost Effectiveness: Gold ETFs do not have making charges or GST, unlike jewellery, which makes them cheaper.
• Tax Efficiency: Long-term capital gains on Gold ETFs (over three years) in India are taxed at 20% with the benefit of indexation, as it is the case with physical gold.

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When Should Indians Invest in Gold ETFs?

Gold is a conventional safe-haven instrument in India, particularly in times of economic uncertainty, inflation, or geopolitical instability. Experts advise including Gold ETFs in your portfolio to diversify risks as well as hedge against the volatility of the market.

As the prices of gold are trading close to record highs, investing in a lump sum at this time can be involve some risk of price correction. Financial planners recommend spreading investments, for example, investing from time to time through SIPs, to achieve average cost benefits and lower timing risks.

Gold ETF: Experts Advise Caution

Indian investment experts concurred that Gold ETFs are still a sound means to access gold while preventing the risks of physical holding. Nevertheless, they recommend having a diversified portfolio with gold exposure typically between 10% and 15% to handle risk in a proper manner. Applying SIPs or multi-asset funds pairing gold with equities can offer stable and long-term growth without too much volatility.

Key Points to Remember Before Investing

Look at the expense ratio and tracking error of the Gold ETF you select, as they influence returns. Gold ETFs might not be suitable for short-term trading because of the price volatility of gold; they are more suitable for medium to long-term investors. Tax implications are varied if sold within or after three years; speak with a financial advisor in order to determine your respective tax scenario.

Disclaimer: Gold ETF investments come with market risks such as price volatility and currency fluctuations. The past is not an indicator of future results. Investors must seek the advice of a qualified financial advisor before investing.