Gold ETFs are units representing physical gold, which may be in paper or dematerialized form. These units are traded on the exchange like a single stock of any company. Gold ETFs are intended to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of Gold and buy and sell that participation through the trading of a security on a stock exchange.
Trading in Gold ETFs is very simple. It is similar to how we trade in equity shares .You need to register yourself with a broker having membership of the particular stock exchange, fill up the KYC form, open a demat account, post margins and then commence trading.
Benefits of Gold ETFs:
- Transparent Pricing- Investor gets best possible price while investing in Gold through Gold ETFs.
- Purity-As the gold ETFs are held in demat or paper form, it eliminate impurity issues associated with physical Gold.
- Securities-There are no storage and security issues involved with Gold ETFs.
- Available in small denomination- Minimum investment for a Gold ETF is one unit which equals to 1 gram in most schemes.
- Allow easy asset allocation and diversification – Investing in Gold as an asset class helps an investor diversify his portfolio.
- There is no risk of theft
- Easy accessibility and Tax Benefits(No sales tax, VAT or securities transaction tax is applicable on gold ETFs)
Drawbacks of Gold ETF:
- A small asset management fee is charged by the fund house, so the return is slightly less than the actual increase in the gold price.
- Some ETFs are illiquid, which impacts their buying and selling flexibility.