Gold in paper form trading on an exchange: ETFs, Exchange Traded Funds, are instruments that trade on the stock exchanges. When you buy an ETF, you do not get delivery of te physical gold, but rather get a certificate signifying your ownership of the material. The custodian of the ETF secures the gold that supports your certificate. The advantage of investing in this "paper form" of gold (as opposed to physical form) is that you can trade it on the stock market and get out of it or buy more just by calling up your stock broker. You don't have to incur the hassles of keeping the material in a safe place, or of finding a gold jeweller you can trust. You buy and sell at the prevailing market price, without having to pay a profit margin to the jeweller. Also, you can be rest assured that the purity of the gold is the highest.
In a country like India where most of us like to touch and feel tangible things, the idea of buying gold in paper form like an ETF is novel, and will take some getting used to. If one is old fashioned, this might not suit everyone. Also, you will have to declare your PAN card and other details, like you would if you trade through a demat account, and for some people who use their undeclared income to buy gold (or convert it into gold), the disclosures required might be too demanding.
Whichever form of gold you find most suited to you, its worth investing at least 10% of your investible portfolio in gold to provide stability and protection against inflation. Worst case scenario, you can always "consume" your gold by using it as an ornament and get some satisfaction out of that!
Source: www.iTrust.in
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