Buying gold on Akshaya Tritiya has been a tradition in India. Over the years, jewellers have witnessed investors flocking to buy gold on this very day. However in the wake of coronavirus outbreak, when going to a jewellery shop is still considered as risk, more and more people are considering various investment options other than physical gold, such as gold exchange traded funds (ETFs).
There has been a steady increase in Gold ETF folio numbers since last lockdown. The number of Gold ETF folio rose 54.70% year-on-year to 2,14,207 folios in April 2021 from 33,611 folios in May, 2020 said Geojit financial services. The Average Assets Under Management (AUM) showed an increase of 57.44% during last year, it added. Gold ETF has shown an average monthly inflow of Rs. 572.35 crore during the said period, Geojit mentioned.
Here’s all you need to know about purchasing gold ETFs
From an investment perspective, Gold ETFs can be preferred to physical gold. It is a passive investment that track the domestic price of physical gold. The underlying asset of all the Gold ETFs is gold of 99.5% purity. One can hold Gold ETFs in regular demat account. Individuals can buy or sell gold ETFs on the stock exchange using your trading accounts. As on April 30 ,the average ticket size of Gold ETF is Rs 1,03,259 per folio, according to Geojit mutual fund data.
Not like mutual fund:
“When you buy units of a mutual fund scheme from the AMC, the AUM of the fund increases and when you redeem units the AUM of the fund reduces. In case of ETF, there is only transfer of ownership from seller to buyer and the ETF AUM remains constant,” explained Motilal Oswal Financial Services.
“In Gold ETF all the transactions are really transparent and happen in real-time gold prices. Since the units are listed and traded on the stock exchanges liquidation of the fund becomes easier. Unlike in the case of physical gold , the question of storage and security will not arise as the Gold ETF is held in digital form,” said Geojit financial services.
Can Start by Investing Small Amount
Any individual can take exposure in gold by investing a small amount as low as one unit of the fund. Gold ETFs can also be used as collateral for gold loans if any emergency arises. “Even tiny investors can take exposure in gold by investing a small amount as low as one unit of the fund that too in a highly transparent way. Question of price disparity is also not there,” said Jeevan Kumar, head investment advisor at Geojit financial services.
Tax on Gold ETFs
“The capital gains from Gold ETFs are taxed in a similar way as physical gold and debt-oriented funds. The short term capital gains on selling units of the Gold ETF held for less than 36 months are added to the investors income and taxed according to the applicable income tax bracket. The long term capital gains on selling units held for more than 36 months are taxed at 20% with indexation benefits,” said Archit Gupta, founder and chief executive officer, ClearTax.
Gold ETF investor can redeem his money only in the form of cash. Market risk is attached to all ETFs and Gold is also not exempted from this. Investor has to study the performance of all the ETFs available in the market to choose the best one, Jeevan Kumar explained.
Should you purchase Gold ETFs this Akshaya Tritiya?
“One should invest in Gold ETF as a part of his portfolio diversification. From an investor point of view taking exposure in multi assets could bring down the overall portfolio risk and gold is considered as one of the suitable asset class in the list. 10% to 15% allocation in gold would be ideal proposition for a portfolio. Those who wishes to invest in gold but does not want to invest in physical gold due to the storage hassles, feel of insecurity, doubt about purity can definitely opt for Gold ETFs. When it comes to transacting ETFs are more transparent,” suggested Geojit financial services.