Investing in physical gold (jewellery, biscuits, bars) requires lot of extra cost and hassle which actually put overhead the cost to the actual gold price whereas investing in electronic gold ETF (exchange traded fund) is hassle-free and low-cost dealing. Gold ETFs can be bought and sold just like a stock or share of a company in share market like NSE and BSE in their cash segment. Do you want to know more? Let’s discuss below.
All about Gold Jewellery:
The cost of 22 carat gold per gram has become approximately 50000 rupees. But still the craze for gold jewellery has not diminished rather it is increasing day by day. The cost is higher that is why you are buying less gold. Some people are buying 20 carat or even less 18 carat gold to save money. But still, they are buying gold. If you think that buying gold means only gold jewellery then will be livening in a fool’s paradise. Buying gold doesn’t mean only gold jewellery, gold biscuits, bars and gold blocks (24 carat) also need to considered. Nobody considers the additional expenses and the risk involved in gold buying which in turn increase the cost of gold.
Is gold an investment or headache?
Now some people will give logic that gold is a good investment and safe investment. Gold can be bought and sold according to wish. If you think like that then you are living in an imaginary world. Gold will never be currency or a part of barter system. You will find bunch of difficulties at the time of selling your gold jewellery. You will never get the proper price of it. You have to sale your gold jewellery to that particular jewellery shop where from you bought that particular jewellery, be that jewellery Hallmarked or not. In this regard there are some rules from the central government to be acted upon but who are there to follow the rules! And if you have your ancestral gold jewellery then you are in a deep shit. You will find there is nobody in the earth to give proper price to it. If you want to sell your jewellery first of all the making charge we will not get back. The making charge of a gold jewellery amongst to 20-25% of the total cost of the jewellery. So you are already been at a loss of 20-25%. In most of the cases you have to accept the rate given by the jewellery shop. And if the gold jewellery is not Hallmarked then almost 28% of the total weight of the gold will be deducted. What is the amount to getting back if you are taking the gold as an investment?
Safety and Security of Gold:
Also, you have to think about the safety and security of the gold jewelries you have accumulated. It is not a good proposition to keep the gold jewelries in your house. Then what is the option? The best option is Bank locker which is another expense.
|Annual charges (in ₹) *
|1500 – 4000
|Bank of Baroda
|2400 – 4000
|1250 – 6300
|2000 – 5000
|4900 – 8000
Gold Insurance or gold included general insurance:
You can keep your gold jewelleries in your home provided you have good insurance cover of the gold jewelleries. The matter of concern is only for gold jewellery there are very few insurance policies. Some insurance companies like New India Assurance Company Limited and HDFC ergo have gold insurance policies. This means another expenditure for the safety and security of the value of the gold. So how many middleclass families can afford these premiums for the policies?
Generally, golds are cover under general insurance of household and furniture. But there is a clutch that only 25% of a total policy value considered as gold value. So, if you have gold more than 25% sum assured value then you will not get the extra amount.
For gold insurance the premium is one person or a total policy value. So, if you have 4 lakh of policy value then the premium will be 4000 per year. In case of gold insurance policy, the golds jewellery should be purchased from reputed shop and the gold valuation should be mentioned in the invoice and you must have the certificate of the purity of the gold.
All about Gold ETF in India:
A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion.
Gold ETFs are units representing physical gold which may be in paper or dematerialised form. One Gold ETF unit tantamount to 1 gram of gold and is supported by physical gold of high purity. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments. Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like in a stock market. Gold ETFs trade on the cash segment of BSE & NSE and can be bought and sold in the listed market.
Buying Gold ETFs means you are buying gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. You don’t get physical gold but receive the cash equivalent when you actually redeem Gold ETF. Trading of gold ETFs requires a dematerialised account (Demat) and a broker, which makes it a convenient way of electronically investing in gold. Because of its direct gold pricing, there is a complete transparency on the holdings of a Gold ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments.
How does a gold ETF work?
Purity & Price: Gold ETFs represents 99.5% pure physical gold bars. Gold ETF prices are listed on the website of BSE/NSE and can be bought or sold anytime through a stock broker. Unlike gold jewellery, gold ETF can be bought and sold at the same price Pan-India.
Where to buy: Gold ETFs can be bought on BSE/NSE through the broker using a demat account and trading account. A brokerage fee and minor fund management charges are applicable when buying or selling gold ETFs.
Risks: Gold ETFs are subject to market risks impacting the price of gold. Gold ETFs are subject to SEBI Mutual Funds Regulations. Regular audit of the physical gold bought by fund houses by a statutory auditor is mandatory.
Advantages of Gold ETF:
- Purity of the gold is guaranteed and each unit is backed by physical gold of high purity.
- Transparent and real time gold prices.
- Listed and traded on stock exchange.
- Gold ETFs charges are very low for buying and selling. (Generally, 0.4% commission)
- A tax efficient way to hold gold as the income earned from them is treated as long term capital gain.
- No wealth tax, no security transaction tax, no VAT and no sales tax.
- No fear of theft – Safe and secure as units held in Demat. One also saves on safe deposit locker charges.
- ETFs are accepted as collateral for loans.
- No entry and exit load.
Who should invest in gold ETF:
Gold ETFs are ideal for investors who wish to invest in gold but do not want to invest in physical gold due to the storage cost and hassles, suspicious about purity of gold and also want to get tax rebates. There is no premium or making charge, so investors stand to save money if their investment is substantial.
Some of the reputed Gold ETFs in NSE:
UTI GOLD Exchange Traded Fund (GOLDSHARE)
Frequently Asked Questions:
No, only electronics paper or dematerialised (Demat) form of gold can be sold. You have to sell your physical gold in gold shops or physical market only.
NSE - National Stock Exchange of India
BSE - Bombay Stock Exchange Ltd
One Gold ETF unit represents to 1 gram of gold and is supported by physical gold of high purity.
Yes, anybody can by gold ETF provided he has a authorised bank account, a valid demat account and he should be 18+ years of age.
Yes, buying gold ETF online in highly possible if you have a valid demat account.