Gold ETFs are more liquid and safe in comparison to other options. They can be invested and managed from the comfort of your home.
Gold represents one of the several asset classes available to investors, but it is not without its fair share of differences. Unlike stocks, which offer you a portion of ownership in a company, or bonds, which pay you interest over time, the value of gold is determined by demand and supply.
About Gold ETFs
Gold Exchange Traded Funds, or Gold ETFs, are open-ended funds traded on a stock exchange and represent one of the ways you can invest in this direction. They passively track the price of physical gold and therefore, such Mutual Fund units offer returns in tandem with gold prices.
Do note that Gold ETFs entail a brokerage cost besides the stated expense ratio, and this is deducted from the invested amount.
Compared to other options such as gold bonds, Gold ETFs are more liquid – there is an element of safety since they are not in physical form, and can be invested and managed from the comfort of your home. The experience is yet simpler if you have a Demat account.
While both short, as well as long-term capital gains, are accordingly applicable, the latter at 20% with indexation may be an attractive proposition depending on the economic climate.
Pros & Cons
Overall, Gold ETFs help you bank on the yellow metal when the price of gold is soaring.
However, keep in mind that while these instruments performed well during the economic turmoil of 2008, they have been performing rather poorly for the last few years.
It is important to realise that gold as an asset class is more of a hedge than an investment, and Gold ETFs should be carefully examined before you proceed to invest in one over the other. If you would like to have an exposure in this asset class in your portfolio, make sure you choose an ETF with a low expense ratio, and it is advisable that you don’t allocate too much of it in your complete investment portfolio. Opt for it only if you have already managed to link all your financial goals to your other investments and are debt free.