What is Gold ETF

August 31, 2023

What Is Gold ETF?

A Gold Exchange Traded Fund (ETF) is an investment that follows the price of gold and can be bought and sold on the stock market, just like individual stocks. Gold ETF is a fund that holds gold assets like bullion or futures contracts. As an investor, when you purchase units of a Gold ETF, you invest in a certain quantity of gold without physically owning it.

If, for example, the price of gold increases by 3%, the value of the ETF should increase by about 3%. Similar to how the price of gold should fall if the ETF’s value does too. 

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Gold ETF Meaning 

Gold ETFs represent an easy, cost-effective way to invest in gold. Each unit of a Gold ETF represents the ownership of a specific quantity of gold, typically one gram. Unlike mutual funds, Gold ETFs are listed and traded on stock exchanges.

Gold ETFs are bought and sold on stock exchanges just like stocks. This makes them easy to trade, and it also allows investors to get in and out of gold investments quickly. Gold ETFs are also relatively inexpensive to buy and hold, which makes them a good option for investors who are looking for a low-cost way to invest in gold.

To further illustrate, consider this scenario. You want to invest in gold, but storing physical gold is problematic. You decide to buy units of a Gold ETF. For each unit you buy, the ETF provider purchases an equivalent amount of gold. The provider owns this gold, but as an investor, you have a right to it through your units. You can sell these units on the stock exchange at any time, just like stocks, and the price of the units closely tracks the current market price of gold.

How Does a Gold ETF Work?

A gold ETF is a specific investment fund that trades on a stock exchange and holds gold assets like bullion or futures contracts. Investors can purchase and sell shares of the ETF on the stock exchange just like they would any other stock because its price is directly correlated with the price of gold. 

Here’s how it works:

  1. Investors buy units of the ETF: Each unit typically represents ownership of a fixed quantity of gold.
  2. The ETF buys gold: The ETF provider uses the money collected from investors to buy physical gold.
  3. The gold is stored: The ETF provider stores this gold safely on behalf of the investors.
  4. The ETF units are traded: Investors can buy and sell these units on a stock exchange. The price of a unit is based on the current market price of gold.

Gold ETF Benefits

One of the main benefits of a Gold ETF is that it allows investors to invest in gold without the need to store it physically. 

Other gold etf benefits are explained below:

  • Easy to trade: Gold ETFs are traded on stock exchanges like stocks, so investors can buy and sell them quickly and easily. 
  • Low cost: Gold ETFs have low management fees, which means that investors keep more of their money when they invest in gold ETFs. This can make a big difference over time, especially for investors who invest a lot of money.
  • Liquid: Gold ETFs are a liquid investment. This means that investors can easily buy and sell them without worrying about finding a buyer or seller. 
  • Diversification: Gold is a non-correlated asset, meaning it doesn’t move in the same direction as stocks and bonds. This makes gold ETFs a good way to diversify an investment portfolio.

Gold ETF Vs Digital Gold

The main difference between a Gold ETF and Digital Gold is that a Gold ETF is a financial product traded on the stock exchange, while Digital Gold is bought and held digitally through various fintech platforms. 

ParametersGold ETFDigital Gold
Mode of TradeTraded on the stock exchange, similar to stocksBought online through fintech platforms
StorageNo physical storage required, the gold is held by the ETF providerNo physical storage required, the gold is held by the service provider
Purity of GoldStandardized purity, as the ETF invests in 99.5% pure goldPurity may vary depending on the platform
LiquidityHigh liquidity, can be sold on the stock exchange during market hoursLiquidity depends on the platform’s buy-back policy
Minimum InvestmentCan invest in one unit, equivalent to one gram of goldMinimum investment varies, and can be as low as 0.01 gram on some platforms

Gold ETF vs Physical Gold

The main difference between a Gold ETF and Physical Gold is that a gold ETF offers an investment in gold without owning it physically, whereas Physical Gold involves tangible ownership and storage. 

ParametersGold ETFPhysical Gold
StorageNo physical storage required, the gold is held by the ETF providerRequires safe storage, which may involve additional costs
Purity of GoldStandardised purity, as the ETF invests in 99.5% pure goldPurity depends on the seller and requires verification
LiquidityHigh liquidity, can be sold on the stock exchange during market hoursLiquidity depends on the local market conditions
SafetyNo risk of theft, as there’s no physical possessionRisk of theft is high, especially for large quantities
CostsCharges include fund management fees, which are usually lowMay involve making charges, taxes, and storage costs

How To Buy an ETF In India?

Buying a Gold ETF in India is a straightforward process if you have a Demat and a trading account. These accounts can be opened with any registered broker or brokerage platform, such as Alice Blue.

Here are the steps to invest in a Gold ETF via Alice Blue:

  1. Open a Demat and trading account: You can apply online through the Alice Blue website. You must submit copies of your PAN card, Aadhar card, bank details, and a few other documents for KYC.
  2. Log into your account: Once your account is activated, you can log into your account using your login credentials.
  3. Search for Gold ETFs: Use the search bar to find the Gold ETF you want to invest in. You can find various Gold ETFs listed on the BSE and NSE.
  4. Place the order: After selecting the Gold ETF, choose the ‘Buy’ option, enter the number of units you want to buy, and place the order.
  5. Review your portfolio: You can review your portfolio anytime to check the performance of your Gold ETF.

Gold ETF Tax

The tax treatment of gold ETFs depends on how long you hold them. If you sell them within 3 years of buying them, you will be taxed on the short-term capital gains. If you sell them after three years, you will be taxed at a flat rate of 20% on the long-term capital gains, with indexation benefits.

Here is a table summarizing the tax treatment of gold ETFs:

Holding PeriodTax Treatment
Less than 3 yearsShort-term capital gains taxed at your marginal tax rate
3 years or moreLong-term capital gains taxed at 20%, with indexation benefits

Gold ETF Returns

Here is the year-wise return of gold ETFs in India over the past 5 years:

2023 (YTD)14.49%8.918%

Best Gold ETF Funds

Here are some of the best gold ETF funds to invest in 2023:

  • Axis Gold ETF
  • ICICI Prudential Gold ETF
  • Nippon India ETF Gold BeES
  • SBI Gold ETF
ETF1-Year Return3-Year Return5-Year Return
Axis Gold ETF18.28%5.75%13.86%
ICICI Prudential Gold ETF14.5%3.6%13.8%
Nippon India ETF Gold BeES16.48%9.85%18.6%
SBI Gold ETF17.58%4.4%13.2%

We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know:

Ddpi full form
What is vwap in stock market
Roe Vs Roce
Etf vs stock
How to buy etf
Valuation Of Shares
Difference Between Demat and Trading Account
Full Service Broker VS Discount Broker
What is Intraday Trading

What Is Gold ETF?- Quick Summary

  • A Gold ETF is an exchange-traded fund that tracks the price of gold. It lets investors take part in the gold market without having to hold gold physically.
  • Some key benefits of Gold ETFs include liquidity, transparency, affordability, and ease of trading.
  • Compared to Digital Gold, Gold ETFs provide more liquidity, are regulated by SEBI, and can be traded on the stock exchange.
  • When compared to Physical Gold, Gold ETFs eliminate the need for storage, ensure high purity, and are easier to buy and sell.
  • Some of the best gold ETF funds to invest in are the Axis Gold ETF, ICICI Prudential Gold ETF, Nippon India ETF Gold BeES, SBI Gold ETF.
  • Invest in ETFs at no cost with Alice Blue.  Alice Blue also offers a service called “Margin Trade Funding,” which lets you buy stocks with 4x margin. This means you can buy stocks worth Rs 10,000 for just  Rs 2,500. 

Gold ETF Meaning – FAQs  

What Is a Gold ETF?

A Gold ETF, or Exchange-Traded Fund, is an investment fund traded on stock exchanges, just like individual stocks. It tries to keep up with the price of gold, so investors can get a piece of the gold market without owning physical gold.

What is the minimum investment in gold ETF?

The minimum investment in a Gold ETF can be as low as one unit, typically equivalent to one gram of gold. This low entry barrier makes it a viable investment option for many investors.

What are the benefits of gold ETF?

Some of the benefits of investing in Gold ETFs include:

  • Liquidity
  • Lower costs
  • Easy to manage
  • Diversification

Are gold ETFs a good investment?

Yes, gold ETFs can be a good investment option for several reasons. They offer a means of diversifying your portfolio, are highly liquid, and track the price of gold, which has traditionally been a safe-haven asset during market volatility. However, like any investment, they should align with your investment goals and risk tolerance.

Is Gold ETF risky?

All investments come with some risk, and Gold ETFs are no exception. While they are less risky compared to many other asset classes, their price is subject to fluctuations in global gold prices. Hence, if gold prices fall, the value of your Gold ETF investment will also decrease.

What is the cost of 1 Gold ETF?

As of July 31, 2023, the cost of 1 Gold ETF is INR 5,451.40. However, this can vary based on the ETF provider and the current market price of gold. For the most accurate price, it’s best to check the listing of the specific Gold ETF on the exchange.

DateJuly 31, 2023
Cost of 1 Gold ETFINR 5,451.40
Factors influencing priceETF provider, current market price of gold

What is the best gold ETF to buy in India?

Here are the best gold ETFs to buy in India:

  • Axis Gold ETF
  • ICICI Prudential Gold ETF
  • Nippon India ETF Gold BeES

Is a gold ETF taxable?

Yes, gold ETFs are taxable in India. The tax treatment of gold ETFs depends on how long you hold them. If you sell them within 3 years of purchase, you will be taxed on the short-term capital gains at your marginal tax rate. If you sell them after 3 years, the long-term capital gains will be taxed at a flat rate of 20%, with some indexation benefits.

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