The Indian fondness for gold is globally acknowledged. So, if you are waiting to buy gold, just rethink the ordeal of physical gold and but an ETF instead. They are easy to store, safe and carry the same purity.
What are gold ETFs?
Gold ETFs, or paper gold, are mutual fund units which invest your money in physical gold just the way equity mutual funds invest in equities. The units of Gold ETFs are traded in exchanges and hence offer liquidity and the right price for both buyers and sellers. A typical gold ETF would invest up to 90-100 per cent in 99.5 per cent pure physical gold sourced from RBI approved banks and agencies, while the other 0-10 per cent is invested in debt instruments. Therefore, you can expect a return from your Gold ETFs in line with prices of physical gold.
Who can buy Gold ETFs?
Individual who have a demat and trading account can buy and sell them Individual who want to buy 1 kg or multiples thereof can directly buy the units from fund houses with basic requirement of demat account.
Where can you buy?
All Gold ETFs in India are traded in the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Therefore, you can buy gold ETFs from exchanges either through your online trading account or through your broker. To purchase Gold ETF units directly from the asset management companies (AMCs), you need to qualify as an eligible investor who can directly create or redeem the units in lieu of at least 1 kg of physical gold and multiples thereof from the AMC if he so desire.
Who offers them?
There are 10 fund houses that offer gold ETFs currently. These are Axis, Benchmark, ICICI Prudential, HDFC, Kotak, Quantum, Reliance, Religare, SBI and UTI Mutual Fund.
What does it cost?
The minimum that you can buy is gold worth at least 1 unit, which is equivalent to 1 gram of physical gold, with the exception of Quantum, who offer half a gram option for each unit.
Advantages over physical gold
The table below shows the advantages of buying gold ETF vis-à-vis buying physical gold from a jeweler or a bank.
Can you SIP?
AMCs do not provide the systematic investment plan (SIP) option under gold ETFs. "However, investors could always choose to time their allocations to gold at regular intervals and create an SIP for themselves," says Chirag Mehta, fund manager - commodities, Quantum Asset Management Company.
Tax liability
All good things come with a rider and so does investing in ETFs. For individuals and NRIs, the long-term capital gains tax on gold ETF is [10 per cent without indexation or 20 per cent with indexation whichever is lower] + 3 per cent education cess. While the LTCG tax is levied after three years on physical gold, it is levied after one year in the case of Gold ETFs. The short-term capital gains will be taxed at the normal rates depending upon the slab of each individual. There is no securities transaction tax and wealth tax on gold ETFs. However, wealth tax is levied on holding of physical gold.
Make the most of this festive season, and start investing in gold ETFs if gold is what you are looking at to invest in.
