Learn how to invest in gold ETFs

    Gold has always been an integral element of Indian culture and traditions. From weddings and festivals to religious and special occasions, gold symbolises prosperity and good fortune.

    For generations, Indians have invested in physical gold as a way to secure their wealth and protect against inflation. However, with the digitisation of the investment industry, buying gold has also become digital. This means that you can now invest in Gold Exchange-Traded Funds (ETFs) without worrying about the safety and storage issues that come with owning physical gold.

    What is a gold ETF?

    Gold ETF is an exchange-traded fund that invests mainly in gold. Just like stocks, you can buy and sell these funds on the stock exchange. They are similar to open-ended mutual funds, but they are focused on gold and its fluctuating prices.

    When you invest in a gold ETF, you are buying units that represent a certain amount of gold. One unit of a gold ETF is equal to one gram of gold. The advantages of investing in gold ETFs are the flexibility, liquidity, and diversification they offer. Since they are listed and traded on stock exchanges, these investments are regulated by strict guidelines and offer more protection than physical gold.

    Steps to invest in gold ETFs

    To invest in gold ETFs online, you need a demat account and a trading account. Provide the relevant documents and information as per the requirements. After that, you can buy/sell units online or monitor their performance. Here is how to do it.

    • Compare gold ETFs: Research and select the gold ETF that matches your goals, risk profile, and return expectations. Check its expense ratio, liquidity, past performance, fund manager, and evaluate other parameters.
    • Place your order through an online portal: Log in to your trading account on the broker’s website or app. Enter the gold ETF investment details, such as the number of units or the amount you want to invest. Review the order before placing it.
    • Confirmation of purchase: Once your purchase order is matched with a corresponding sell order on the stock exchange, you will receive a confirmation of the transaction. This confirmation is usually sent to you via SMS or email.
    • Transaction charges: Brokerages charge a nominal amount as transaction fees for buying and selling gold ETFs. Evaluate the charges associated with your trades beforehand and factor them into your investment decision.

    Why should you buy a gold ETF?

    • Liquidity: Gold ETFs make it easy for investors to buy and sell gold online with just a few clicks. This is more convenient than selling or buying physical gold bars or coins.
    • Cost effective: Gold ETFs generally have lower expenses than most other types of mutual funds.
    • Diversification: A gold ETF can provide diversification in the sense that gold tends to have a low correlation with most asset classes. For example, when the stock markets crash, gold usually holds its value which can help you balance out the losses. Investments in gold ETFs can also protect you against inflation and currency fluctuations.
    • Transparency: Gold ETFs provide investors with transparency in terms of pricing and holdings. The price of a gold ETF is linked to the market price of physical gold, minimising the chances of manipulation.

    To conclude

    With low expenses, ease of trading and storage, transparency, safety, and a high level of liquidity, gold ETFs help you capitalise on the benefits of gold investment without the hassle of physical ownership. There are multiple online platforms where you can easily buy gold ETF with real-time updates. However, financial guidance is important to determine the right allocation as per market trends and to map out an investment strategy.