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Gold ETF India

Gold Exchange Traded Fund (ETF), invests majorly in physical gold bullion. In other words, their underlying asset is physical gold bullion. Whereasa gold mutual fund invests in Gold ETFs which in turn invest in the bullion, the cost of the shares in these funds usually keeps up with the existing market price of gold.

Gold mutual fund is emerging as one of the leading mutual fund investment options. A distinctly unique feature that separates it from the other popular mutual fund categories is that while most mutual funds invest in stocks and other securities, gold mutual funds indirectly invest in physical gold assets.

Gold Mutual Funds in India are traded on the National Stock Exchange (NSE) and other globally renowned exchanges and function in a similar fashion as equity stocks of companies. This enables the units of gold mutual funds to be consistently sold and purchased on several international stock exchanges at the quoted market prices. The value of these mutual fund investments is closely linked to gold prices in the local or global markets.

This is a passive investment option that is best suited for individuals as well as companies that do not find purchasing physical gold a viable proposition or want to diversify their portfolio. Besides, it offers exposure to gold as an asset class, without the hassle of registering fora demat account. It is a safe investment instrument that remains mostly stable even during market volatility because gold prices seldom depreciate.

History of Gold ETF Mutual Fund

Central Fund of Canada holds the record of pioneering the concept of close-ended gold exchange traded fund in the year 1961. Amendments to these articles in 1983 introduced a concept of gold exchange traded funds that is very similar to what it is now. However, the difference of these exchange traded funds from what it is in the modern day was that investors could invest in gold and silver bullion simultaneously. It has been listed in the Toronto Security Exchange from 1966 and the AMEX from 1986.

The present day concept of gold mutual fund was created in India in the year 2002 through a proposal submitted by the Benchmark Asset Management Company Pvt Ltd. to the Securities Exchange Board of India (SEBI). After multiple delays and several rejections from regulatory authorities, it was finally approved and the first gold exchange trade fund was launched in 2007. Meanwhile, Australia launched the first modern day gold ETF, named Gold Bullion Securities, in 2003.

Currently, NSE enlists more than a dozen varied gold ETFs and holds the sole authority to trade them daily, under the management of leading Asset Management Companies in the country. Now, the concept of gold mutual funds have spread across the globe and are being traded by international stock exchanges in Paris, London, Zurich and New York.As per June 2010 data, vaulted gold crossed the benchmark of 2,062.6 tonnes for institutional and private investors.

Benefits of Gold Mutual Fund

The significance of gold in the Indian societyexplains the demand for gold mutual fund investments. As the name suggests, gold mutual funds indirectly invest in gold bullion. It serves the dual purpose of offering the opportunity to invest in gold, but at the same time enabling investors to overcome the hassle of owing physical gold. However, the benefits are not restricted to only these. Let’s have a detailed look at the benefits of gold mutual fund.

Healthy return on investment

The value of gold rarely depreciates.As gold mutual fund investments are linked to the market value of gold, they offer positive returns on investment, unlike other asset classes.

Hedge against inflation

Gold asset class is closely related to other asset classes like bonds and equity and remains unaffected during unstable economic situations like in inflation.

Safe and Robust Investment

The ability of gold to resist unstable capital market situations, along with appreciating value, makes gold mutual funds one of the safest investment instruments.

Diversification

Being a secure investment option, gold mutual fund gives investors an opportunity to invest in a wider range of low-risk shares and stocks of gold manufacturers and miners to rebalance their portfolio.

Demat account not compulsory

Gold mutual fund schemes offer exposure into gold as an asset class, even with a nominal investment amount, without havinga demat account to invest through a mutual fund provider.

Systematic Investment Plan (SIP)

It encourages a disciplined investment approach over the long-term andensures systematic investments in gold. It enables investors to plan the monthly expenses as per their investment and without ‘timing the markets’.

Liquidity

Gold mutual funds offer investors the benefit of redeeming gold funds on all business days, offering necessary financial support during emergency situations.

Cost-effective

Gold mutual fundenables investing small amounts, as per the convenience of investors.What makes it even more reasonable is that it does not involve extraneous expenses that are usually involved in other types of investments like annual maintenance charges for demat account, brokerage or delivery fees or transaction fees incurred for investing through the dematerialised mode, etc.

Tax Benefits

Gold mutual funds enable investors to avail long-term capital gains tax after remaining invested for a year. This is because it is treated as a non-equity investment from the tax perspective. In contrast, physical gold long-term taxation can be claimedonly after 3 years since the investment.

Convenience of Investing

Most gold mutual fund providers are equipped with service centres across locations in India to ensure easy accessibility and instant assistance.

Availability of add on facility

Add-on features like systematic transfer plan and systematic withdrawal plan are also offered on gold mutual funds.

Tips on Investing in Gold Mutual Funds

If you are debating on whether you should invest in gold mutual funds or not, you need to have an in-depth idea about this fund category to be confident that it is aligned to your investment objectives. Here are some tips for you to understand gold mutual funds better:

Gold mutual funds usually don’t attract extraordinary returns

Returns on gold mutual fund investments are heavily dependent on the existing global events. When most other mutual fund investments experience high risks during volatile economic situations, the demand for gold mutual funds increase because of gold being a safe investment instrument. A stable economic situation leads to decreasing dependence on gold mutual funds as then other mutual fund investments offer higher returns. Therefore, gold usually does not attract exceptional returns in the long term. Gold mutual fund investments are the best suited for small and medium-term as gold usually does not offer more than 10% returns annually.

Diversify a restricted number of assets from your investment portfolio into gold

Diversifying your portfolio across different asset classes enables you to build a robust investment folio and minimises the chances of exposing yourself to unnecessary risk. It is advisable to stay away from making heavy investments in gold. Do not make too heavy or long-term investments in gold. Assigning between 5% and 10% of your investment portfolio to gold mutual funds will ensure stable returns even during volatile situations, while at the same time reducing risks.

Track the trends before making gold mutual fund investments

Track the gold price over sometime to get a fair idea about the rise and fall of prices. Invest in gold mutual funds when gold prices are low and sell them when the prices have gone up. If your investment portfolio is managed by a fund manager, keep a close eye on your account, so that you can take a final call on whether your investments are in sync with your financial goals.

Hire the right fund manager

There are two criteria that you need to consider while selecting your investments and fund manager – reasonable fees and performance. Gold mutual funds are accompanied bya commission or brokerage fees between 0.5% and 1%. Therefore, it will be a wise idea for you to hire a fund manager who demands lower charges. Apart from the fees, track the fund performance over the past few years and the fund manager’s account management skills.

How does Gold ETF work?

The objective of gold mutual fund is to replicate the performance of gold. Fund houses offering gold mutual funds manage their funds with the same aim. Authorised Participants (AP) are appointed by fund houses offering these mutual funds to purchase the units of these funds in lieu of physical gold assets. These participants are then involved in secondary market trading of gold. The underlying gold is controlled and managed by the fund house in the form of gold receipts or physical gold, giving it the ownership right.

The authorised participants can later decide to redeem the gold mutual fund units in exchange of the existing gold price. Gold mutual fund units can be purchased through a stock exchange that enables investors to purchase and sell gold units on a certain rate of payment as mentioned in the investment document. These authorised participants are usually leading financial institutions like market makers that are authorised with obtaining the underlying assets required to create, manage and run gold mutual funds.

Purchasing and selling of gold mutual fund units on the stock exchange does not create new units. New units can only be directly created with the fund house on the authorised participants appointed by the fund house in exchange of the underlying security with the gold mutual funds. The creation of new units leads to a rise in demand of physical gold.

The investment process for gold mutual funds is the same as that of stocks. As a result, they too experience price fluctuations during a trading day due to supply and demand. When several investors purchase gold mutual funds, their share price might rise above the NAV. Similarly, when many investors sell their gold mutual fund, the share price might experience a fall below its underlying bullion.

Gold mutual fund investments are greatly driven by the sentiment and psychology of investors. This is because they are bearish to lower prices and bullish to rising prices. Rising gold prices create great enthusiasm among gold mutual fund investors to purchase shares, which leads to a rapid increase in gold mutual fund share prices. Similarly, falling gold prices throw investors in a panic mode, making them sell their shares, which brings down gold mutual fund share prices.

The authorised participants purchase physical gold and deliver it to the gold mutual fund company in lieu of a block of gold mutual fund shares, referred to as a creation unit. The authorised participant may resell these shares for profits or redeem creation units to obtain the bullion, which again can be sold. Only authorised participants can redeem gold mutual fund shares, while retail investors can resell them in the open market. Whether it be securing, selling or reselling shares of gold mutual funds, share prices are determined by the actions and decisions of these authorised participants.

Benefits of Gold Mutual Fund vs. physical Gold Investments

The buzz around gold mutual funds is to a great extend due to the auspiciousness of the yellow metal among Indians. The importance of physical gold dates back to the traditional concept of the metal being a secure, steady and reliable source of income during challenging economic situations. No wonder, there was a great demand for physical gold post-demonetisation. Though gold mutual funds cannot replace physical gold assets, they offer some benefits that make them score over physical gold as an investment instrument.

Flexible investment

Gold mutual funds can be purchased and sold as per your convenience when you have the correct trading account. The buying and selling prices are strictly controlled and managed by SEBI and other regulatory bodies to ensure transparency in investments. However, the same cannot be said for physical gold investments, wherein gold can be readily purchased from any jeweller, bank and even from online ecommerce platforms, but the selling process may not be as seamless. You may not receive a fair price for it.

Low storage expense

Storing physical gold requires investments over and above the purchasing price for safe storage. Being a tangible asset, it requires charges incurred for storing them in lockers, along with fees for guards and other security systems. Besides concerns over its safe storage, it may also involve space constraints, which does not apply for gold mutual fund investments. Gold mutual fund investors can ensure safe storage through the paper form or the demat form, both of which guarantees that the authority of redeeming the investment lies only with the investor. In case of loss of documents, their duplicates can be applied for on payment of a nominal charge.

No additional marking charges

Extraneous charges incurred for physical gold investments are not restricted to safe storage. There are also additional making fees plus applicable taxes involved, which are charged by jewellers for gold bars, coins and finished gold jewellery.These prices are chargeable on the existing gold prices, weight and other parameters. On the other hand, gold mutual fund investments only involve a nominal expense ratio, chargeable at less than 1%, which is significantly lower than the average manufacturing cost of physical gold.

No questions over purity

Despite the existence of Hallmarked gold, many still possess non-hallmarked gold assets which raise concerns over their purity. In contrast, gold mutual funds are assured of the authenticity of the yellow metal, whether be it in the paper form or the demat form.

List of Gold Mutual Funds in India

Growth Gold Mutual Funds

Name of Gold ELFNAV1-Y Return %3-Y Return %
Axis Gold Fund2,612.99-0.61.7
Birla SL Gold Fund2,741.00-1.12.5
Canara Robeco Gold Savings Fund2,868.000.22.9
HDFC Gold Fund2,698.90-1.12.8
ICICI Pru Regular Gold Savings Fund2,667.75-1.22.4
IDBI Gold Fund270-1.52.3
Invesco India Fold Fund2,676.00-12.5
Kotak Gold Fund258.85-12.4
Quantum Gold Saving Fund1,308.00-12.4
Reliance Gold Savings Fund*N.T.--
SBI Gold Fund2,667.15-1.22.4

Dividend Gold Mutual Funds

Name of Gold ELFNAV1-Y Return %3-Y Return %
Axis Gold Fund2,612.99-0.61.7
Birla SL Gold Fund2,741.00-1.12.5
Canara Robeco Gold Savings Fund2,868.000.22.9
HDFC Gold Fund2,698.90-1.12.8
ICICI Pru Regular Gold Savings Fund2,667.75-1.22.4
IDBI Gold Fund2701.52.3
Invesco India Fold Fund2,676.00-12.5
Kotak Gold Fund258.852.4
Quantum Gold Saving Fund1,308.00-12.4
Reliance Gold Savings Fund*N.T.--
SBI Gold Fund2,667.15-1.22.4

FAQs on Gold ETF Mutual Funds

What is the best gold ETF to buy?

The following is the list of top 10 gold mutual funds (growth and dividend) that you can select from:

Growth Gold Mutual Funds

Name of Gold ELFNAV1-Y Return %3-Y Return %
Axis Gold Fund2,612.99-0.61.7
Birla SL Gold Fund2,741.00-1.12.5
Canara Robeco Gold Savings Fund2,868.000.22.9
HDFC Gold Fund2,698.90-1.12.8
ICICI Pru Regular Gold Savings Fund2,667.75-1.22.4
IDBI Gold Fund270-1.52.3
Invesco India Fold Fund2,676.00-1.52.5
Kotak Gold Fund258.85-12.4
Quantum Gold Saving Fund1,308.00-12.4
Reliance Gold Savings Fund*N.T.--
SBI Gold Fund2,667.15-1.22.4

Dividend Gold Mutual Funds

Name of Gold ELFNAV1-Y Return %3-Y Return %
Axis Gold Fund2,612.99- 0.61.7
Birla SL Gold Fund2,741.00-1.12.5
Canara Robeco Gold Savings Fund2,868.000.22.9
HDFC Gold Fund2,698.90-1.12.8
ICICI Pru Regular Gold Savings Fund2,667.75-1.22.4
IDBI Gold Fund270-1.52.3
Invesco India Fold Fund2,676.00-12.5
Kotak Gold Fund258.85-12.4
Quantum Gold Saving Fund1,308.00-12.4
Reliance Gold Savings Fund*N.T.--
SBI Gold Fund2,667.15- 1.22.4

Is buying gold a good investment?

The following are the reasons why gold is a wise investment option:

Healthy return on investment

The value of gold rarely depreciates. As gold mutual fund investments are linked to the market value of gold, they offer positive returns on investment, unlike other asset classes.

Hedge against inflation

Gold asset class is closely related to other asset classes like bonds and equity and remains unaffected during unstable economic situations like during inflation.

Safe and robust investment

The ability of gold to resist unstable capital market situations, along with appreciating value, makes gold mutual funds one of the safest investment instruments.

Diversification

Being a secure investment option, gold mutual fund give investors an opportunity to invest in a wider range of low-risk shares and stocks of gold manufacturers and miners to rebalance their portfolio.

Demat account not compulsory

Gold mutual fund schemes offer exposure into gold as an asset class, even with a nominal investment amount, without having a demat account to invest through a mutual fund provider.

Systematic Investment Plan (SIP)

It encourages a disciplined investment approach over the long-term and ensures systematic investments in gold. It enables investors to plan the monthly expenses as per their investment and without ‘timing the markets’.

Liquidity

Gold mutual funds offer investors the benefit of redeeming gold funds on all business days, offering necessary financial support during emergency situations.

Cost-effective

Gold mutual fund enables investing small amounts, as per the convenience of investors. What makes it even more reasonable is that it does not involve extraneous expenses that are usually involved in other types of investments like annual maintenance charges for demat account , brokerage or delivery fees or transaction fees incurred for investing through the dematerialised mode, etc.

Tax Benefits

Gold mutual funds enable investors to avail long-term capital gains tax after remaining invested for a year. This is because it is treated as a non-equity investment from the tax perspective. In contrast, physical gold long-term taxation can be claimed only after 3 years since the investment.

Convenience of investing

Most gold mutual fund providers are equipped with service centres across locations in India to ensure easy accessibility and instant assistance.

Availability of add on facility

Add-on features like systematic transfer plan and systematic withdrawal plan are also offered on gold mutual funds.

How do I invest in e-gold?

The following is the process for e-gold investments:

  • Open a demat account with a Depository Participant (DP) of National Spot Exchange Limited (NSEL), India. This demat account cannot be the same as the one through which you invest in equities and commodities.
  • The trading settlement gets completed in T+2 days.
  • You can surrender the required units to the exchange in lieu of the physical delivery of gold from any of the three delivery centres in India - Mumbai, Delhi and Ahmedabad.

What are gold mutual funds?

Gold Exchange Traded Fund (ETF), invests majorly in physical gold bullion or companies that produce gold. In other words, their underlying asset is physical gold bullion. Whereas a gold mutual fund invests in Gold ETFs which in turn invest in the bullion , the cost of the shares in these funds usually keeps up with the existing market price of gold.

Gold mutual fund is emerging as one of the leading mutual fund investment options. A distinctly unique feature that separates it from the other popular mutual fund categories is that while most mutual funds invest in stocks and other securities, gold mutual funds indirectly invest in physical gold assets.

Gold Mutual Funds in India are traded on the National Stock Exchange (NSE) and other globally renowned exchanges and function in a similar fashion as equity stocks of companies. This enables the units of gold mutual funds to be consistently sold and purchased on several international stock exchanges at the quoted market prices. The value of these mutual fund investments is closely linked to gold prices in the local or global markets.

This is a passive investment option that is best suited for individuals as well as companies that does not find purchasing physical gold a viable proposition or want to diversify their portfolio. Besides, it offers exposure to gold as an asset class, without the hassle of registering for a demat account. It is a safe investment instrument that remains mostly stable even during market volatility because gold prices seldom depreciate.

How can I invest in gold?

You can invest in gold in the form of physical assets or gold ETFs or gold mutual funds.

Why would you invest in gold?

Apart from the auspiciousness of the yellow metal among Indians, the importance of physical gold dates back to the traditional concept of the metal being a secure, steady and reliable source of income during challenging economic situations. No wonder, there was a great demand for physical gold post-demonetisation.

Does Vanguard have a gold fund?

Vanguard’s Special Metal and Mining Fund is not a pure gold or precious metals fund, but it invests only within companies that specialise in the mining of precious metals, rare metals and minerals. This fund is exposed to the risk of narrow investment. Since the returns widely vary from one year to the other, investing in this fund might be an option if you are planning to diversify your portfolio with a long-term fund scheme.

How do I invest in gold stocks?

The easiest option for investing in gold is to purchase a gold mutual fund. One of the leading gold mutual funds has the ticker symbol, GLD. You can start by opening an account at a discount broker like Schwab and purchase gold stocks.

What is e-gold in India?

E-gold is held electronically in the demat form and offers the flexibility of being converted into physical gold as per the financial objectives of the investor. In India, the National Stock Exchange Limited (NSEL) is authorised with the management of e-gold, which enables investors to invest in commodities like gold, silver and platinum through online platforms.

Are gold ETFs backed by physical gold?

Yes, certain Gold Exchange Traded Funds (ETFs) are backed by physical gold. However, contrary to popular belief, even if you have invested in physically-backed gold ETFs, it does not mean that you own physical gold. You cannot sell or redeem shares in lieu of physical gold.

What is GLD gold?

The easiest option for investing in gold is to purchase a gold mutual fund. One of the leading gold mutual funds has the ticker symbol, GLD.

What is gold bond investment?

Sovereign Gold Bonds (SGBs) can be defined as government securities that are denominated in grams of gold. These bonds are issued by the Reserve bank of India (RBI) on behalf of the Indian Government. They act as substitutes for holding physical gold. The issue price has to be paid in cash, while bonds can be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.

What is a gold futures contract?

Gold futures are exchange-traded contracts, that is, a contract by which the buyer agrees to take delivery of a certain quantity of gold from the seller at a pre-defined price on a future date.

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