What is a gold etf
A Gold ETF (Exchange Traded Fund) allows you to invest in gold without physically buying it. Instead of purchasing physical gold from the market, you buy digital units of gold at the same market price through an online platform. These units can be sold anytime you want, just like stocks.
Simple Breakdown:
You don’t need to worry about storing or protecting physical gold — there’s no risk of theft. Gold ETFs are traded on the stock market in the same way as regular shares.
One big advantage is: gold rarely results in a loss over the long term. It is considered a safe and stable investment.
benefits of investing in gold
Diversification: Gold tends to have a low or negative correlation with other asset classes like stocks and bonds. This means that when the stock market is down, gold prices may hold steady or even increase, providing a cushion to your overall portfolio. Including gold can reduce the overall volatility and risk of your investment portfolio.
Hedge Against Inflation: Historically, gold has served as a reliable hedge against inflation. When the purchasing power of paper currency declines due to rising prices, gold often maintains or increases its value. This makes it a way to preserve your wealth during inflationary periods. For example, during periods of high inflation, the price of gold has often increased, outperforming traditional savings instruments.
Safe Haven During Economic Uncertainty: In times of economic turmoil, geopolitical instability, or market crises, investors often turn to gold as a safe haven asset. Its perceived intrinsic value and lack of credit risk make it attractive when other investments are volatile. During events like the 2008 financial crisis and the COVID-19 pandemic, gold prices saw significant appreciation as investors sought safer assets.
Wealth Preservation: Gold has maintained its value over the long term, unlike paper currencies which can be subject to devaluation. It’s considered a way to pass on and preserve wealth across generations. Gold has been a store of value for thousands of years, outlasting many forms of currency.
Liquidity: Gold is a highly liquid asset. It can be easily bought and sold in various forms (bars, coins, jewelry, ETFs) almost anywhere in the world, providing quick access to cash if needed. You can sell gold to jewelers, pawn shops, online dealers, or through Gold ETFs on stock exchanges.
Cultural Significance (in India): In India, gold holds immense cultural and emotional value, often playing a significant role in marriages, festivals, and as a symbol of wealth and prosperity. This cultural demand can contribute to its investment value. The demand for gold in India often surges during the wedding and festival seasons like Diwali.
Why Choose Gold ETF Over Physical Gold?
No Storage Hassle or Costs: Gold ETFs are held in a dematerialized form, eliminating the need for physical storage, security concerns, and associated costs like locker fees and insurance. Physical gold requires secure storage, which can be inconvenient and expensive.
No Making Charges or Impurities: When you buy physical gold, especially jewelry, you often incur making charges. Moreover, there’s always a risk of impurities in physical gold unless you buy hallmarked coins or bars. Gold ETFs represent gold of high purity (typically 99.5%), and you avoid making charges.
Higher Liquidity: Gold ETFs can be bought and sold easily on stock exchanges, just like stocks. This offers higher liquidity compared to physical gold, which might take time and effort to sell at the desired price.
Lower Transaction Costs: Transaction costs for Gold ETFs, such as brokerage fees, are generally lower than the costs associated with buying and selling physical gold (e.g., dealer markups). There are no entry or exit loads for ETFs.
Convenience and Ease of Trading: You can trade Gold ETFs from the comfort of your home through your demat and trading account. Buying and selling physical gold involves physically going to a jeweler or dealer.
Small Denomination Investment: You can start investing in Gold ETFs with as little as one unit (representing one gram of gold), making it more accessible for small investors. Buying physical gold often requires a more significant upfront investment.
No Risk of Theft or Loss: Since Gold ETFs are held electronically, there’s no risk of theft or loss associated with storing physical gold.
Transparency: The price of Gold ETFs is linked to the market price of physical gold and is transparently available on stock exchanges.
Can be used as Collateral: Gold ETFs can be used as collateral for securing loans from financial institutions, which might be a more convenient process than traditional hypothecation of physical gold.
How to invest in gold ETF 2025 - step by step
To invest in Gold ETFs in India in 2025, here’s a step-by-step process:
Step 1: Open a Demat and Trading Account
To invest in Gold ETFs, you’ll need a Dematerialized (Demat) account and a trading account with a SEBI-registered stockbroker.
You can open these accounts online through various brokerage platforms. Ensure the broker offers trading in Exchange Traded Funds (ETFs) on the National Stock Exchange of India (NSE) or the Bombay Stock Exchange (BSE).
Keep your Know Your Customer (KYC) documents (like PAN, Aadhaar, address proof) ready for a smooth account opening process.
Step 2: Fund Your Trading Account
Once your accounts are active, you need to transfer funds from your bank account to your trading account. Most brokers provide various online payment options for this.
Step 3: Choose a Gold ETF
Research and select a Gold ETF that suits your investment goals. Consider factors like:
Expense Ratio: This is the annual fee charged by the fund house to manage the ETF. Lower expense ratios are generally better. Some popular Gold ETFs in India as of early May 2025 include HDFC Gold ETF, Aditya Birla Sun Life Gold ETF, and Kotak Gold ETF.
Liquidity: Check the trading volume of the ETF on the stock exchange. Higher liquidity ensures that you can easily buy and sell units without significant price impact.
Tracking Error: This measures how closely the ETF’s performance tracks the price of physical gold. A lower tracking error is desirable.
Asset Under Management (AUM): A larger AUM generally indicates higher investor confidence.
Step 4: Place a Buy Order
Log in to your trading platform using your credentials.
Search for the ticker symbol of the Gold ETF you’ve chosen (e.g., GOLDBEES for Nippon India ETF Gold BeES, SBIGOLD for SBI Gold ETF).
Enter the quantity of units you want to buy. Typically, one unit of a Gold ETF represents one gram of gold.
You can place a market order (to buy at the current market price) or a limit order (to specify the maximum price you’re willing to pay).
Review the order details and confirm the purchase.
Step 5: Order Execution and Holding
Once your order is executed, the Gold ETF units will be credited to your Demat account.
You can hold these units for as long as you want. The value of your investment will fluctuate with the price of gold.
Step 6: Selling Your Gold ETF Units
When you want to sell your Gold ETF units, log in to your trading platform.
Search for the Gold ETF in your holdings.
Enter the quantity of units you wish to sell.
Place a sell order, either at the market price or a specific price.
Once the order is executed, the sale proceeds will be credited to your trading account, and subsequently, you can transfer them to your bank account.
Key Considerations for 2025:
Regulatory Changes: Stay informed about any changes in regulations by SEBI (Securities and Exchange Board of India) that might affect Gold ETFs or the investment process.
Taxation: Understand the tax implications of investing in Gold ETFs. In India, as of May 2025, short-term capital gains (if held for less than 36 months) are taxed according to your income tax slab. Long-term capital gains (if held for 36 months or more) are taxed at 20% with indexation benefits.
Expense Ratios: Keep an eye on the expense ratios of different Gold ETFs, as these can impact your overall returns over time.
Market Conditions: Consider the prevailing economic conditions and the outlook for gold prices when making your investment decisions. Gold often acts as a hedge against inflation and economic uncertainty.
By following these steps, you can invest in Gold ETFs in India in 2025 and benefit from a convenient and efficient way to participate in the gold market without the hassles of physical ownership. Remember to conduct thorough research and consult with a financial advisor if needed before making any investment decisions.
Gold ETF vs Physical Gold
The choice between Gold ETF and physical gold depends on your individual needs and priorities as an investor. Here’s a comparison to help you decide which might be better for you:
Gold ETF:
Pros:
Convenience and Security: Gold ETFs are held in a dematerialized form, eliminating the hassles and costs associated with physical storage and the risk of theft.
Liquidity: They can be easily bought and sold on stock exchanges, just like stocks, offering high liquidity.
Lower Costs: Generally lower transaction costs as you avoid making charges, storage fees, and insurance costs associated with physical gold.
Purity: Gold ETFs represent gold of high purity (typically 99.5%).
Small Denomination Investment: You can invest in small quantities, even one unit representing one gram of gold.
Transparency: Prices are linked to the market price of physical gold and are transparently available.
Collateral Advantage: Can be used as collateral for loans.
Cons:
No Physical Ownership: You don’t hold the actual physical gold.
Expense Ratio: Involves a small annual management fee.
Market Risk: Subject to market fluctuations and trading risks, although gold itself is considered less volatile than equities.
Taxation: Capital gains are taxed, unlike physical gold which, if held as jewelry, might not attract wealth tax.
Physical Gold:
Pros:
Tangible Asset: You have direct physical possession and ownership. This can provide a sense of security for some investors.
No Counterparty Risk: Not dependent on the performance or solvency of a financial institution (though the purity from the seller is a factor).
Cultural Significance: Holds traditional and cultural value, especially in India.
Can be used as Collateral: Can be pledged to obtain loans.
Cons:
Storage and Security: Requires safe storage, leading to costs like locker fees and the risk of theft.
Making Charges and Impurities: Buying jewelry involves making charges, and there’s a risk of impurity unless you buy certified bullion.
Lower Liquidity: Selling can be time-consuming, and you might not always get the desired price immediately. You may also incur losses on making charges.
Higher Transaction Costs: Involves dealer markups and potential costs for valuation during sale.
Inconvenience: Buying and selling involve physical visits to jewelers or dealers.
Which is Better?
For Investment Purposes: Gold ETFs are generally considered a more efficient and convenient way to invest in gold for pure investment returns due to their liquidity, lower costs, and ease of trading.
For Traditional/Cultural Reasons: If you are buying gold for cultural reasons, as jewelry for personal use, or as heirlooms, physical gold remains the preferred choice.
For Long-Term Holding and Potential Loan Collateral: Both can serve this purpose, but ETFs offer easier storage and can be readily used as collateral with financial institutions.
In conclusion, for most modern investors looking at gold as an investment asset for diversification and hedging, Gold ETFs often present a better option due to their convenience, cost-effectiveness, and liquidity. However, the emotional and cultural attachment to physical gold ensures its continued relevance.
Tax on gold etf in india?
Short-Term Capital Gains (STCG):
If you sell your Gold ETF units within 12 months (one year) from the date of purchase, the gains are considered short-term capital gains.
These gains are taxed according to your applicable income tax slab rate. This means the profit will be added to your total taxable income and taxed at the rate corresponding to your income bracket.
Long-Term Capital Gains (LTCG):
If you sell your Gold ETF units after holding them for more than 12 months (one year), the gains are considered long-term capital gains.
These gains are taxed at a flat rate of 12.5%.
It’s important to note that after the Budget 2024, the benefit of indexation is no longer applicable to long-term capital gains from gold investments, including Gold ETFs. Indexation previously allowed investors to adjust the purchase price for inflation, thereby reducing the taxable gain.
best gold etf in india
- Nippon India ETF Gold BeES: Often cited as one of the largest by AUM, it aims to track the price of physical gold. It has a long track record in the Indian market.
- SBI Gold ETF: Another large Gold ETF that seeks to reflect the performance of gold prices in India.
- ICICI Prudential Gold ETF: This ETF also aims to track the domestic price of gold and is known for having a competitive expense ratio among some lists.
- HDFC Gold Exchange Traded Fund: This fund’s objective is to track the price of gold in India, offering an alternative to physical gold investment.
- Kotak Gold ETF: Provides investors with an avenue to invest in gold by closely matching the returns of gold in the domestic market.
- UTI Gold Exchange Traded Fund: Replicates the domestic price of gold, designed to provide returns that correspond closely to the price of physical gold.
- Aditya Birla Sun Life Gold ETF: Aims to track the performance of gold.
- Axis Gold ETF: Also works towards tracking the price of gold.
