About Exchange Traded Fund
Gold Funds like Exchange Traded Fund (ETF) is an investment fund that is mainly traded on a stock exchange. These funds function like stocks and are known to hold assets like stock, commodities, or bonds. Gold ETF or Exchange Traded Funds are the combination of the best of two worlds- stocks trading and gold investments. These exchange traded funds perform like stocks and are bought and sold similarly on the stock exchange. Exchange Traded Funds represent assets both in dematerialised and paper form. These are basically open ended mutual fund schemes that are primarily based on ever fluctuating gold prices. Apart from being associated with various cultures, gold has evolved as a good investment. It widens the investment portfolio and acts as a barricade against inflation. Expenses induced in buying, selling or making gold jewellery is way more than gold ETFs. Gold ETFs come in dematerialised form and are closer to the market price of physical gold. Exchange traded funds are traded in the stock market based on the value of the gold. So if you want to earn profits from the increasing value of the gold in the future, then investing in gold ETFs could do wonders.
Gold ETFs are like bonds, that can be used as the investors against inflation or any economic disruptions. Gold exchange traded funds provide investors with the flexibility of stock investments along with the simplicity of buying other gold investments. As gold is its primary asset and it is less volatile than equity funds. There are no entry or exit loads for buying or selling gold ETFs. Like stocks, Gold ETFs are sold at real time gold prices. Because of direct gold pricing, Gold exchange traded funds are considered to be completely transparent and trustworthy. These can be bought or sold easily. Thus, it is highly liquid. Holding physical gold comes with lots of risks, but holding Gold ETFs reduces the risks associated with physical gold. Also, the expenses induced in buying, selling or making physical gold is way more than these gold ETFs. So, it is more cost effective than investing in physical gold. They can also be used as collateral against loans. Investing in physical gold may cost you wealth taxes, but a gold ETF doesn’t cost wealth tax, security transaction tax, VAT or Sales Tax. Income from these ETFs are treated as long term capital gains tax. One unit of this exchange traded fund represents one gram of gold. One can start investing with as low as one unit of a traded fund. This makes it ideal for all types of investors. Also, if you are new to the stock market, then you should definitely consider this investment option as it is less risky. It also helps to widen your investment portfolio and spreads your investments in a safer investment option.
- Gold ETFs are best suited for investors who want to trace and reflect the prices of precious metals like golds.
- Individuals who want to Invest in gold but don’t want to bear the expenses and risks associated with physical gold, can invest in these gold exchange traded funds and can increase their income by trading these funds in the stock market.
- It provides plenty of opportunities to gain market exposure on the price and performance of gold. Gold exchange traded funds charge only 0.5% to 1% brokerage fees, which is lower than commission charges of other investment options.
- Gold is considered as a very safe asset. Its prices are usually not very fluctuating. It is a good time to invest the gold ETFs when the gold prices go down, because you will be able to generate profits when the prices will rise slowly.
- If you invest large sums or trade regularly, the gold ETFs will earn you more profits than other gold based investments. Do keep a track on the gold prices trends before investing. Gold performs better as a small to medium term investment. Do not make too heavy or long term investments in gold.
- Allocating 5% to 10% of your investment portfolio to gold is a wise idea. This will solidly build your investment portfolio and hence give you stable returns. Before investing in gold ETFs it is important to track the historical performance of the fund house.
- Gold ETF must be chosen based on their trading activity. Higher the trading activity, higher will be the liquidity. Net Asset Value plays a vital role as it can be referred to the ETF’s per share value. Before investing, investors should check the Net Asset Value of the gold.
- Nowadays most of the investors have gradually moved towards gold ETFs since they are secure and allow investors to track gold price trends easily.
The trading of gold ETFs is regulated by SEBI, which ensures that investors get the best price for their investment so that there is no change of being misguided by the fund houses. Due to their unique structure, gold ETFs are considered as highly economical investment options, when compared to physical gold investments.