Published: 07 Jul 2017

Why SIPs in Gold ETFs are a Great Long-term Investment?

Traditionally, most of us have been investing in gold through direct options such as gold coins, gold bars, and jewellery. However, even the most traditional gold buyer today wants to explore gold Exchange Traded Fund (ETF) as an investment option to save storage costs, buy and sell electronically and have a transparent and safe way of investing in gold in the long run.

Purchasing gold through an ETF is nothing but buying gold in an electronic form. Gold ETFs are an indirect method of investing in gold. These are mutual funds that are listed on prominent stock exchanges. The main objective of gold ETFs is to provide the investors with returns, which before accounting for expenses closely matches the returns provided by domestic physical gold price.

Features of Gold ETF SIPs

• You can buy or sell gold ETF units just like stocks
• You get a dematerialised unit backed by physical gold
• Gold ETF prices are transparent and real time
• You can purchase gold ETFs in small lots
• Trading on exchanges gives your portfolio faster chance to grow
• SIPs in gold ETFs inculcate good investment discipline

Why are ETFs a great long-term option?

Small units: One of the advantages of Gold ETFs is that they allow you to make a single unit purchase. This means you can grow your gold store as gradually as you can afford to and keep adding units as you go. You can watch and monitor growth daily.  Moreover, since you don’t possess the gold, maintenance costs are nil, and you don’t even need to worry about storing it.

Liquidity: The icing on the cake is that the moment you need your gold, you can simply redeem your units. In addition, you are also permitted to use your gold ETFs as collateral for loans. Buying and selling can completely take place online so unlike physical gold you don’t have to visit multiple retailers to get the best price.

Portfolio diversification: SIPs for Gold ETFs are an ideal way to start the process of diversifying your gold investments and are an excellent way to discipline yourself when it comes to investments. They’re a great long term because they’re nothing but a dematerialised form of gold, and secondly, they invest directly in gold of 99.5% purity. It is more tax efficient as compared to physical gold.

Low risk: Gold trading is completely transparent and is backed by pure gold and since storing gold is not an option, storage risks are also negated. Since you are not paying jeweller premium or making charges like with physical gold you are getting the exact amount for your gold as per market price with minimum wastage.

How do you benefit if you start a monthly SIP in a prominent gold ETF?

✔ No cost of storage and no security concerns
✔ No worries about impurities in the metal
✔ You can trade a single unit of gold ETF just like trading a stock
✔ You decide the quantum of units you want to buy. You can buy them in smaller lots
✔ There is no wealth tax here compared with gold coins and bars
✔ Gold ETFs are normally more tax efficient