Advantages of Investing in Gold ETFs

• Potentially cheaper to have price exposure to gold price as compared to other available avenues
• Quick and convenient dealing through demat account
• No storage and security issue for investors
• Transparent pricing
• Taxation of Mutual Fund
• Can be traded on stock exchange like buying / selling a stock
• Ideal for retail investor as minimum lot size to trade is one unit on secondary market

Why should you buy gold?

Experts suggest that at least 10% of your investible portfolio should be in gold. As it happens, for many Indian families gold often represents a large percentage of the family assets, given the socio-economic and cultural factors in play. Whatever be the reasons, an investment in gold is worth considering. Here we share with you some reasons why you should consider buying gold. Possibly some or more of them relate to your personal situation.

1. Consumption - Weddings and religious occasions: In the Indian cultural context, families have always attached a lot of significance to gold, typically in jewellery or ornament form. Our TV shows, movies and mythological imagery is filled with the use of gold. Some critics, unfamiliar with Indian culture, might even refer to our use of gold as bling. Gold symbolizes value and wealth, and is a sign of prosperity. We are one of the few cultures in the world where gold is not just an investment, but rather used for consumption through daily usage in ornaments and jewellery.

Whether its festivals like Diwali or Akshaya Tritiya or events like weddings and child birth, gold is considered very auspicious. Many families start accumulating gold coins and ornaments in anticipation of a wedding in the family, or in preparation for the religious holidays. Its no wonder that India is one of the largest consumers of gold globally.

If you expect that there will be a wedding in the family, or want to prepare for a religious occasion, you might want to consider using your resources to start accumulating gold. But, please recognize that holding on to gold will not yield any income or interest. Its likely that you are buying gold when you have the money and will have no actual use of the gold till the wedding or the religious occasion, which could be years or months away. The best you can hope for is some capital appreciation if gold prices move upwards from when you bought it.

2. Investments - Store of value: All over the world, including India, gold is seen as a safe store of value. For instance, the Reserve Bank of India and almost every country's central bank, keeps a part of their reserves in gold. Similarly, the common man also buys gold bars, coins and bricks for investments. Gold can be used to provide some stability and diversification to an investment portfolio. At times when other assets like equities might be volatile due to economic recession, geopolitical trouble or inflation, gold might be a steady store of value for your portfolio.

3. Liquidity - Ability to convert into cash: Gold is a widely traded precious metal. Whether at the local jeweller, pawn shop or in the investment world, you can readily and conveniently convert your holding in gold into cash. You might be holding on to gold for this very reason to be able to convert it into cash when you need to, or you might be facing some financial hardship and as a result have decided to raise cash by selling your gold when you need money. Compare this to real estate or an investment in art where it could take you months to sell your house or painting and get cash for it because the transaction can be very time consuming.

4. Safety - Premium attached to scarcity value during crises: The world has a finite supply of gold. At times of a financial crisis, high inflation, wars (or threat of wars), gold prices shoot up as there is a flight of investors towards safe assets like gold. For instance, during the sub-prime crisis in 2008 gold was a very good performing asset that rose in price, even though the equity markets were collapsing. Similarly, when the Gulf War occurred in 2003, gold prices shot up. 
If you feel that the global situation is poor and that rather than leaving your cash in your bank which will lose its purchasing power due to inflation you want to be in a safe asset, you might want to consider purchasing gold. While it might not yield any income as discussed above, it will keep your capital safe and will likely not depreciate in value due to inflation.

If you are buying gold but are doubtful about your purchase, recognize that its been used both for ornamentation and for investment purposes for over 2,000 years. And, that's not about to change. You might not be able to time the market to buy gold at the right price, but then again you might not be left with any option given the role it plays in Indian culture.

Source: iTrust.in

How you can Invest in Gold ETF Funds

Give your investments the power of gold.

Gold’s most valuable contribution to a portfolio, lies in the fact that it has a low correlation with most other assets. This is due to the fact that the factors affecting the price of gold differ from those that influence the price of most other asset classes.

What is Gold ETF?

A Gold ETF is an ETF whose assets are invested in gold bullion with the objective of generating returns that are in line with the performance of gold (and gold related instruments including derivatives – as and when permitted by SEBI) subject to tracking errors.

How do Gold ETFs differ from physical gold?

Unlike physical gold, Gold ETFs are held in demat / electronic form and can be traded on a stock exchange just like buying and selling stocks.

How are Gold ETFs better than physical gold?

Gold ETFs score over physical gold, because they eliminate the hassles and drawbacks of physical gold (e.g. impurity risk), are more tax-efficient and allow you to invest in small amounts.

How are Gold ETFs better than Gold Funds?

Gold ETFs are better than Gold Funds because in comparison to Gold Funds, Gold ETFs are less volatile. While gold ETFs invest in physical gold, Gold Funds invest in equities of gold mining companies; and gold stocks are more leveraged to the gold prices than the gold itself.

What is the purity of the underlying gold?

Gold ETFs invest in standard gold bullion with purity (fineness) of 995 parts per1,000 (99.5%) or higher.

How are Gold ETFs taxed under Income Tax Act, 1961?

Gold ETFs schemes are treated like non-equity mutual funds for the purpose of taxation.So, the gains attract short term capital gains (STCG) tax if held for less than one year and long term capital gains (LTCG) tax if the period of holding is more than a year.

(You can check this on :Tax treatment for Gold ETF)

What are main benefits in investing in Gold ETFs Fund?

Assured purity

No storage or security concerns

Easy liquidity

Trade in small amounts

Why should an investor invest in Gold ETF? No worry on adulteration Gold provides diversification to the portfolio Gold is considered as a Global Asset Class Gold is used as a Hedge against Inflation Gold is considered to be less volatile compared to equities Held in Electronic Form Store of value Extremely Liquid

Advantages of Investing in Gold ETFs Potentially cheaper to have price exposure to gold price as compared to other available avenues Quick and convenient dealing through demat account No storage and security issue for investors Transparent pricing Taxation of Mutual Fund Can be traded on stock exchange like buying / selling a stock Ideal for retail investor as minimum lot size to trade is one unit on secondary market NAV of a unit will track price of approximately ½ or 1 gram of gold Investor Requirements for trading in Gold ETF Trading account with a stock exchange broker Demat account as Gold ETF can be traded only in demat form

Which Amc's offer Gold ETF Funds?

1. HDFC Gold Exchange Traded Fund 

2. ICICI Prudential Gold ETF NFO or ICICI Gold Exchange Traded Fund

3. Reliance Gold Exchange Traded Fund

4. Kotak Gold Exchange Traded Fund
5. Gold Bench Mark Exchange Traded Fund

6. UTI Exchange Traded Fund
7. Quantum Gold Fund Exchange Traded Fund

 Also Refer:NSE Codes for Gold ETF funds (Exchange Traded Funds)