The festive season is upon us and Indians will fall over each other to buy gold, never mind the prices. While physical gold is favourite among the masses, there exists a better way to invest in gold – gold Exchange Traded Funds as they are called. Gold ETFs have been a success story around the world and Indians are warming up to the idea of investing in it since they were launched in 2007. Here is updated details & returns will July 2020.
Let us see what is gold ETF funds and why they need to be included in your financial planning.
What are Gold ETFs ?
You must already know this, but for the uninitiated, Gold ETFs are open ended mutual funds that help you invest your money in gold which is 99.5 % pure. Gold Exchange Traded Funds are also known as paper gold. These are listed on the stock exchanges and investors are assigned units of the mutual fund where each unit often represents one gram of gold.
Note that there are ETFs where each unit can represent less then one gram of gold as well.
Being passively managed funds, they simply follow the price of gold in the market and so their returns match the returns of gold you would buy off-line. An investor can buy and sell them on the stock exchange.
Why buy them ?
Gold ETF Funds have many advantages that make them a favourite among investors.
# They are listed on the stock exchange so you can buy and sell them like equities. They are very liquid.
# They are extremely safe. Since they are not in physical nature, you do not have to spend sleepless nights worrying about someone breaking into your home or bank locker. They are in paper form.
# Retail investors can buy gold as little as 1 gram or less.
# When you buy, you do not rub your head thinking about it’s purity. It is 24 carat gold and you do not have to check that before you buy. It is pure !
How to buy ?
The best way to invest in such funds online is by buying them on the stock exchanges BSE and NSE. For this, you need to have a DEMAT account.
Note that there is no systematic investment planning or SIP available in these which you normally find in non-gold mutual funds. What this means is that you have to buy them each month on the stock exchange yourself. That can be a hassle as many investors would forget to do this each month.
You could possibly give standing instructions to your broker to buy it for you. But avoid putting in a lumpsum amount. Invest systematically so that you an use the benefit of rupee cost averaging.
Be aware that the expense ratio of the ETFs range from 1 to 1.5%.
Taxation
What is Gold ETF and Taxation in such ETFs is similar to that of a debt mutual fund.
Investment held for less than a year attracts short-term capital gain tax. Here the tax rate depends on the tax slab the investor falls in. Investment held for more than a year attracts long-term capital gains tax and is taxed at 20 per cent with indexation or 10 per cent without indexation, whichever is less.
What is Gold ETF and which ones to invest in India ?
Since 2007 when the first fund Benchmark Gold BeES was launched, there have been quite a few that have hit the stands. Look at the below ETFs that you can invest in. The one year returns are practically the same for all of them as they follow the prices of physical gold in the market.
There are 4 that started in 2007 so you can probably pick one of them. The long term performance of all of these funds are nearly the same. But the risk adjusted performance as depicted by the Sharpe ratio is better for Kotak Gold ETF, Nippon Gold ETF and HDFC Gold ETF.
| ETFs Fund as on July 22, 2020 | ||||||||||
| Absolute % (Point to Point) | Compounded Annualised % (CAGR) | |||||||||
| Scheme Name | Corpus (in Crs) |
Min. Investments |
Investment | 1 Month | 3 Months | 6 Months | 1 Year | 2 Year | 3 Year | 5 Year |
| AXIS Gold ETF | 224.20 | 5,000 | REGULAR | 3.24 | 5.11 | 22.09 | 36.55 | 27.17 | 19.22 | 12.53 |
| Aditya Birla SL Gold ETF | 198.25 | 5,000 | REGULAR | 3.29 | 5.24 | 22.79 | 36.88 | 27.41 | 19.22 | 13.21 |
| HDFC Gold ETF | 1438.22 | 5,000 | REGULAR | 3.27 | 5.22 | 22.69 | 35.88 | 26.88 | 18.85 | 13.16 |
| ICICI Pru Gold ETF | 1468.28 | 5,000 | REGULAR | 3.23 | 5.05 | 21.97 | 35.86 | 26.99 | 18.74 | 12.88 |
| IDBI Gold ETF | 84.07 | 10,000 | REGULAR | 3.19 | 5.05 | 22.09 | 35.98 | 27.15 | 19.34 | 13.40 |
| Invesco India Gold ETF | 57.82 | 5,000 | REGULAR | 3.29 | 5.23 | 22.70 | 36.85 | 27.47 | 19.27 | 13.21 |
| Kotak GOLD ETF | 1115.61 | 5,000 | REGULAR | 3.28 | 5.20 | 22.57 | 36.53 | 27.30 | 19.17 | 13.11 |
| Nippon India ETF Gold BeES | 4206.39 | 10,000 | REGULAR | 3.28 | 5.17 | 22.46 | 36.37 | 27.13 | 19.00 | 13.13 |
| Quantum Gold Fund (G) | 101.08 | 5,000 | REGULAR | 3.25 | 5.15 | 22.46 | 36.24 | 27.07 | 19.03 | 13.04 |
| SBI ETF Gold | 1386.93 | 5,000 | REGULAR | 3.28 | 5.19 | 22.63 | 36.67 | 27.29 | 19.08 | 13.09 |
| UTI-Gold ETF | 558.25 | 20,000 | REGULAR | 3.27 | 5.11 | 22.45 | 36.21 | 27.20 | 19.20 | 13.33 |
As usual, remember to take an exposure to gold to a maximum of 5% – 10% of your portfolio. Do no put in all your money into it just because it is one of the best performing asset classes in the last one year.
All the best for your gold investments !
sir, between gold ETFs, MCX- gold and NSEL E-gold , which one is better for short term investment purpose.
i am opening my demate a/c in karvy to trade in NSEL E-gold/E-silver as well as future commodity in MCX for gold and silver.
plz guide me.
@sumit singh, Sorry, short term in Gold is not my forte. I would not put in money in gold for the short term. However, b/w the 3, I like ETFs.
@Radhey Sharma,
ok, thank u lot 🙂
IF you take a view since inception then the best Gold ETF to invest is Golman Sachs ETF, better known as Gold BeES…
well, Gold ETF is the easiest available way of investing in the gold, at the same time the tracking error of most of ETFs is negligible.
In order to invest in gold etf one can go for the IPO route, or can buy them directly on exchange through broker, But gold ETF can also be bought directly from the Fund house, provided the investor buys minimum of 1000 units.
Source:
What is gold ETF? how to invest in Gold ETF?
@Samruddha Salvi, I agree that Goldman Sachs ETF is really good – that is what we advise our clients as well.
Hi Radhey Sharma,
The article says that gold etf is good for short term investment. Please can you guide me a littleon the same. As i am thinking to do so.
@Shruti,
& further more you even mentioned, you would not put money in this for short term. Please elaborate it further more to clear my confusion
@Shruti, Can you clarify where it is mentioned that it is for the short term – I don’t seem to be seeing it.
@Radhey Sharma, It seems Shruti misinterpreted Sumit’s comment as Radhey’s 🙂
Please note is a safe haven and also considered to be an alternate currency in times of crisis. However, one should remember that investing in gold directly apart from value appreciation does not provide any other benefits such as dividend or interest which you can get from equities or fixed deposits. So plan asset allocation properly without too much exposure to gold.
This site should also provide coverage on various commodities including metals such as base metals,precious metals, etc. Commodities are an important asset class worldwide and lots of money is invested in them. China continues to play dominant role as far as commodity prices are concerned
@Sujay, Why would be need to invest in other commodities apart from Gold ? What is the advantage of doing so ?
@Radhey Sharma
Hi Radhey,
With gold price going down day by day and if we read the sentiment of the market which states that Sensex will cross 18000 by Dec’12, do you still feel it is advisable to Gold ETF?
@Nikhil Mittal, Mostly the answer is yes to an extent of 10% of your portfolio.
Keep investing in gold.
Radhey,
I don’t invest in Gold ETFs, never understood the yellow metal. Though i have jewellery in physical form which is for personal use.
Rakesh
@Rakesh, Hmmm, interesting.
Hi
I would like to invest 5 lacs in share. Iam new in this area. Is it advisable to invest in gold etf or in other equities. Kindly advise
Sreekumar
@Sreekumar,
Hmmm, surprised, why shares and not any other avenues. What is your time-frame of investment. Remember equity is only for a long term. Do you know that only about 10% of people make money in shares.
You are at the right place. Radhey has written some wonderful articles on investments. Please read them and you will gain knowledge.
Hi Radhey, How would you rate Gold MFs as compared to ETFs? Is it advisable to invest in gold MFs like Reliance gold savings fund? How is the performance and returns like?
@Vivek K, Gold MFs are fund of funds so their expenses are more than Gold ETFs. You can go with either but Gold ETFs have been doing well, have less expense ratio so why not go with it.
@Radhey Sharma, The expense ratio for ETFs I think is 1% and for MFs it is 1.5%. If you add brokerage for buying/selling ETFs I think the overheads will be the same, may be 0.1% or 0.2% here and there. One advantage in MFs is that you can fix investment through SIP and review only once in a while whereas for ETFs you need to keep a regular watch on market in case you want to invest regularly.
I just wanted to know if there is any other major drawback in MFs and should be avoided.
@Vivek K, Not really, they do not have any obvious dis-advantages.
@Radhey Sharma, Is my understanding on the two expense ratios correct?
Also, I was reading about gold MFs on other blogs and most of the people do not recommend it because of dual expenses. Is it the 0.5% difference so huge even if I decide to do SIP for say 2000 p.m.? I don’t have any exposure of gold in my portfolio so wanted to pick an safe and easy way to invest in it.
I also read that in long term returns in gold are not lucrative, its around 8-10%. It is just the perception of people that buying gold will make you rich. What are your views on it?
@Vivek,
Agree with you on the long term returns of gold are in the range of 8-10%. It’s only since the last two years it has given great returns. Most people buy gold for personal use only (jewellery).
Rakesh
@Rakesh, Jewellery I think people collect for their daughter’s marriage. Based on the discussion with elders it is still a status symbol to buy gold and people who sell gold are looked down upon in the sense they are almost bankrupt now. But when the returns are next to FDs in long run then why invest in gold?
@Vivek K, Guys, gold needs to be in your portfolio for several reasons.
Firstly because of diversification.
Secondly it is a good hedge against inflation.
Thirdly, it is the only investment class the world rushes to in case of bad state of affairs.
Vivek – I did write above that Gold MFs have more expenses than GOLD ETFs. In a way you understanding is correct. However, in ETFs you literally do to need to watch anything each month. It can be like SIP.
Maybe I can do an article on difference between Gold ETFs and Gold MFs.
@Radhey Sharma, Thanks Radhey. Yes, it’d nice to have a comparison and understand pros and cons of both options in details.
@Vivek / @ Radhey,
Good discussion on ETF’s got to learn some more things.
Not sure for some reason’s why i don’t follow ETF and never invested in it.
is there any risk associated with Gold ETF as it is a MF?
@C R Das, Gold ETFs are in fact very safe option when compared to buying physical gold. You don’t have to worry about purity or putting it in locker.
The risk is as good as any other stock, prices can fluctuate. The price of a gold ETF depends on the price of gold. So, if price of gold goes down the value of your gold ETF will also go down. You need to keep reviewing it periodically.
@Vivek K, Hey thanks Vivek for this, I had forgotten to reply on this.
@Radhey Sharma, Don’t mention it Radhey, we are here to watch your back 🙂
When the gold rate has come down sharply like other shares?. Even if the market crashes, gold tends to go up… people opting it as safe investment avenue.. May be a small correction in price then and there cannot be avoided in any commodities. Considering the hedge option for inflation , i definitely choose Gold ETF as best investment. Safe, no real danger. Even when market crashes you can be in peace of mind… What else one need. Buy ETF it is safe and better investment option to safe guard your hard earned money against robber, inflation etc… It is not insane it is sane to invest at least 25% of savings in Gold ETFs… that’s what i’m doing … of-course only of late..
Mohan, 25% is a bit high in gold ETFs esp when you have physical gold also. Keep it to 10% maximum and it will be ok.
It’s good to have reply.But the question is if Gold ETF follows the price of gold, why they show different prices? and is Goldbees is more dependable as its price operated by NSE itself?
@C R Das, Sorry can you explain what you mean by that ? With some examples…
@C R Das, Good question Mr. Das. Radhey can explain you a bit more in detail but I can share what I have read.
Basically gold ETFs does not only contain gold but also cash and debt instruments. The combined value of these assets help in determining the NAV of the ETF. Now there are expenses as well that are paid by each ETF, which eats into the NAV. Higher the expenses, lower the NAV, so lowest NAV does not necessarily mean a good deal.
All the above factors determine the total value of any gold ETF, which can vary from company to company.
To pick an ETF I’d suggest to compare the expense ratio of different companies and I think goldbees is currently having the least expense ratio.
And now the Jeweller’s body seeks abolishing of Gold ETF’s in the current budget. They say they have lost 30% of their business.
Read on …
http://economictimes.indiatimes.com/news/news-by-industry/cons-products/fashion-/-cosmetics-/-jewellery/budget-2012-jewellers-body-seeks-abolition-of-gold-etfs/articleshow/12252022.cms
Mr Radhey Sharma I have a question for you
Investing in gold etfs for a period of 1 year a better option ??( expecting return of 30%)
or you would suggest something else ??
@Jai, You can read this article first and then decide –
You can’t be just looking for returns, you need to have a target in mind.
https://www.thewealthwisher.com/2010/10/07/setting-financial-planning-goals-or-goal-based-investing/
@Jai,
30% is way to much, on a realistic levels 15% could be possible.
What is your expectation?
@Jai, 30% returns!!?? Please let the readers know if you find any such investment that returns 30% in one year. We all would like to invest in such product 🙂
I don’t think it is realistic without super high risk.
than you so much Mr rakesh . I have no idea about Investments ! According to u are ETFs good to expect a return of 15 % ? or u would something else ?
@Jai,
Gold price have been appreciated in the last couple of years hence Gold ETF’s too. If Gold price appreciates further, so would its ETF. But people are expecting a correction, when that will come only time will tell. However in the long run investing in equity diversified MF will give you good returns.
@ Rakesh
Thank you Rakesh ! I even don’t know what are MF ?? Can you please elaborate it and tell me how to invest in them
?
@Jai, It is not recommended to have more than 10% of your total investment in gold. It is not a great product for long term but is essential to maintain a diversified portfolio.
Investing in equity MF through SIP is the best way to earn 15-20% in long run. There are quite a few articles on this blog about MFs, you may read and ask any question you may have.
Happy investing!
@ Vivek
Thank you Vivek . I am going to read those articles now and I hope you don’t mind me further asking
you more questions on ETFs and MF ?
@Jai, Absolutely not Jai, you are more than welcome to come back with queries. You may read below articles to get your basics clear on MFs (Mutual Funds) and ETFs.
https://www.thewealthwisher.com/2010/07/15/what-is-a-mutual-fund/
https://www.thewealthwisher.com/2010/07/18/advantages-of-mutual-funds/
https://www.thewealthwisher.com/2010/07/24/types-or-classifications-of-mutual-funds/
https://www.thewealthwisher.com/2010/10/13/systematic-investment-plan-sip-of-mutual-funds-the-basics/
https://www.thewealthwisher.com/2010/10/22/how-many-mutual-funds-should-you-invest-in/
https://www.thewealthwisher.com/2011/03/14/all-about-exchange-traded-funds-etfs/
Feel free to ask any queries you may have, we are here to help and increase the financial awareness among the Indians.
Good luck and Happy investing!
@Jai, We will help you and guide you Jai. Just keep reading !!!
why there is almost 2000 rs difference in gold prices of between MCX and etf ?
hi, ijust want to ask what is the minimum amount to invest in gold etf? as i am newcomer i want to invest in etf
I would like to know if and how can i convert my ETFs into physical gold
I guess you sell your EFTs and buy physical gold
@ Rakesh & Arjit,
I went through the entire chain or comments and links and I believe that you may want to read a bit more about ETFs. I have written a very detailed article on ETFs (which may be a bit technical, but I have tried to simplify it as much as possible) http://insight.banyanfa.com/?p=635
The point is that you can convert ETF into physical gold, however it is beyond the reach of a retail investor. Once you have gone through the above link, then all options available to invest into Gold (& their pros & cons) are detailed at http://insight.banyanfa.com/?p=540.
Would be glad to answer remaining clarifications.
Regards
BanyanFA
Nice on BFA. I agree that for the retail investor converting into gold might be next to impossible.
http://www.investment-mantra.in/2012/all-about-gold-etf-and-gold-fund-of-funds-fof-at-investment-mantra-in/
@Radhey Sharma
Hi, I have been studying on gold ETF and keen to invest in it.
As a beginner in this field, i would like to know what is the minimum investment I can make in gold ETF?
Minimum investment in Rs 5000.
@mr.radhey getting interest in etfs by reading out all the comments but dont have any experience in such investing field. i want to know that after investing in etfs how we can gain gold physically when required??
thank you for instant comments which have bring on my interest.
You cannot do this. Sell the ETFs and then buy gold offline.
As per my knowledge, Gold ETFs can not be physically converted into Gold. The only alternative available is to sell their holdings in Gold ETFs and purchase Gold from bank / jewelers.
Sir
May we get a comparison of return between lump sum and SIP for a particular MF Gold Fund for last 10-15 yrs. or atleast your view.
Gold MFs haven’t been in existence for the last 10 + years – they were started only in 2007.
in term of tax saving , is ETF or E-Gold better? And thanks a lot for this article! Also thought I would share this video came across in You tube regarding different types of Gold Investment in India
ETF is better than e-Gold. e-Gold hasn’t yet taken off in India as much as of today.
what is god eft . how can i invest in low amount and what is profit . I am new for Share mkt.
@Pawan,
Why do you want to invest in Gold ETF? If you are new to share market first read various articles here and gain some knowledge.
Hello, I’m Planning to open an Demat with HDFC.. or should i go with Goldman sachs?? and also
please tell me that can i trade on a daily & weekly bases too??