Gold ETFs

Gold ETFs

What is a Gold ETF?

A gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. Gold ETFs are units representing physical gold which may be in paper or dematerialised form. One gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity.

Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a single stock of any company. Buying gold ETFs means you are purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. When you actually redeem gold ETF you don’t get physical gold but the cash equivalent.

Trading of gold ETFs takes place through a dematerialised account (Demat) and a broker, which makes it an extremely convenient way of electronically investing in gold.

How does it work?


  • Purity & Price:
    There is no worry about ensuring gold purity as these funds are represented by 99.5% pure gold. Gold ETF prices are listed on the NSE website and can be bought or sold anytime through the broker. It is important to note that unlike jewellery, gold ETF can be bought and sold at the same price Pan-India. 
  • Where to buy:  
    Gold ETFs can be bought at the stock exchange through the broker using a Demat account and trading account. A brokerage fee and minor fund management charges are also levied when you buy and sell these ETFs. 
  • Are there any risks:
    Since gold ETFs are traded on the stock exchange, they are a very safe and secure tool to invest in and make for a desirable variation to your investment portfolio. An investor is at risk when the price of gold rises, gold ETF can help reduce that risk. This activity is monitored by the Securities Exchange Board of India (SEBI) making the risk associated with gold investments much lower. Regular auditing of the gold bought by fund houses is also done by the government agencies.

Is it for me?
If you are someone who doesn’t want to invest in physical gold due to the storage hassles and are also looking to get tax benefits then this is for you. Moreover, it is very easy to buy and sell your ETFs at the click of a button.

Still wondering why gold ETFs make such a great investment tool?

  • You can purchase as low as one unit which is 1 gram.
  • There is no premium or making charge, so you stand to save money if your investment is substantial.
  • Purity of the gold is guaranteed and each unit is backed by physical gold of high purity.
  • Transparent and real time gold prices.
  • You can list and trade on stock exchange.
  • A tax efficient way to hold gold as the income earned from them is treated as long term capital gain. You can avail more tax benefits like no wealth tax, no security transaction tax, no VAT and no sales tax.
  • It is safe and secure as Demat holding allows no fear of theft and you also save on locker charges.
  • ETFs are accepted as collateral for loans.
  • No entry and exit load exists for gold ETF.

How do I redeem it?
Gold ETFs can be sold at the stock exchange through the broker using a Demat account and trading account. Even though you are investing in an ETF that is backed by physical gold, remember that ETFs are best used as a tool to benefit from the price of gold rather than to get access to physical gold. So, when you liquidate it, you are paid in rupees that are equivalent to the domestic market price of the gold that you were holding via ETFs. Asset Management Companies may permit you to redeem your ETF in the form of physical gold if you hold the equivalent of 1kg of gold in ETFs, or in multiples thereof.

Gold Glossary

Exit load

Refers to the commission paid by the investor during the time of exiting the mutual fund or Gold Exchange Traded Fund (ETF). The main purpose behind imposing the charge is to discourage investors from withdrawing from the mutual fund prematurely.

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