Gold plays an important role in the Indian culture. Also, Investing in gold is known to be a Safe Haven for investors. Whenever something huge and unexpected happens globally like Brexit, Trump presidency or the recent demonetization in India, while other stocks see red, gold prices surge at such times. For reasons cultural or monetary, investors flock towards gold, making it one of the most sought after asset in the country (and globally).
Gold is known to be an excellent Inflation hedge. It means that you can Buy Gold in today’s currency and can sell it at the value of the currency tomorrow. Thus, hedging the losses occurring due to currency devaluation.
There is always a demand for gold. No matter what the circumstances of the Market, gold is a prized commodity internationally. So, if you want to sell off your gold today, you will always find takers for it.
As said earlier, during an international crisis, people start investing in gold. This happens mainly due to the fear of the unknown. Speculation causes gold prices to rise drastically thus having an inverse relation with the market. Hence the reason gold is known as a "Safe Haven" asset.
You can invest in gold either by buying physical gold or buying gold indirectly in the form of gold Mutual Funds or gold ETFs. Each form has its own set of advantages and disadvantages.
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Gold funds are topping the returns chart for over three years now, making them an attractive option for investors. A gold ETF (Exchange Traded Fund) is an instrument that is based on gold price. It holds physical gold as the Underlying asset.
Gold Mutual Funds are mutual funds that are issued with gold ETFs held as underlying assets. Here’s the difference between the two:
|Gold ETFs||Gold Mutual Funds|
|Purchase price based on the market value of gold||Purchase price based on NAV (Net Asset Value) of the fund|
|Hold physical gold as the Underlying Asset||Hold gold ETFs as the underlying asset|
|Requires a Demat account||Does not require demat account|
|Investors as to pay a brokerage chargers||Investors has to pay management fees as well as the underlying costs incurred for holding the ETFs|
Investing in gold is a great idea. But, buying physical gold has its own hassles. This is where gold funds or gold ETFs are a saviour.
One of the biggest concerns while buying gold is the purity Factor. Gold bought through jewellery shops may or may not be 100% pure. Gold ETFs are backed by 24-carat gold so the investors are assured of the quality of the gold.
liquidity is another problem while buying physical gold. You have to take the gold to the jewellery shop and take whatever price he is willing to give you. There is no fixed price here. Whereas, gold funds can be liquidated by calling your broker or just a few clicks. The price of the ETF is linked to the international price of gold, so you know the exact value you would get.
Buying gold in the form of jewellery involves making charges which are included in the cost price. Whereas, gold funds don’t have such making charges, thus reducing the cost price.
Physical gold has to be brought from a trusted source, be checked for its purity and ensure you get a good price. Gold funds can be bought in minutes. The quality is assured and the prices are transparent, making them a better option.
On the taxation aspect, gold attracts VAT( Value Added Tax) and wealth tax. Neither of these applies to gold funds.
According to experts, a Portfolio should have at least 5-10% invested in gold. It balances the portfolio since it has an inverse relation with the market. So, start investing in gold today and add some shine to your investments.
Below is the list of top
Gold Funds having AUM/Net Assets >
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2022 (%) Aditya Birla Sun Life Gold Fund Growth ₹18.6517
₹282 4.6 3 14.9 6.8 13.3 12.3 Invesco India Gold Fund Growth ₹18.1587
₹64 4.7 3 14.2 6.9 13.4 12.8 SBI Gold Fund Growth ₹18.769
₹1,461 5.4 3.6 15.5 7.3 13.9 12.6 Nippon India Gold Savings Fund Growth ₹24.6271
₹1,557 4.9 3.3 14.9 6.7 13.4 12.3 Axis Gold Fund Growth ₹18.7562
₹352 4.6 2.9 15.4 7.1 13.7 12.5 ICICI Prudential Regular Gold Savings Fund Growth ₹19.8636
₹736 4.7 3 15.1 6.8 13.3 12.7 Kotak Gold Fund Growth ₹24.7316
₹1,550 4.9 3 14.9 6.6 13.6 11.7 HDFC Gold Fund Growth ₹19.187
₹1,641 4.6 3 14.6 6.7 13.5 12.7 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 6 Dec 23
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A: Investing in gold is always considered to be secure as it offers security against market Volatility. When you invest in gold ETFs, it is similar to investing in physical gold, except that you will not be the owner of a piece of gold. Instead, it will represent the gold in the form of an Exchange Traded Fund. However, the gold ETF offers similar facilities as physical gold, and you can be assured that your investment is safe.
A: Yes, if you are planning to diversify your investment portfolio, you must invest in multiple products and not just stocks and shares of different companies. In such a scenario investing in gold, ETFs can prove a suitable method for diversifying your investment portfolio.
A: When you invest in gold ETFs, you are not investing in the gold Capital market. Instead, you diversify your investments and gain exposure to other related industries like gold mining, transportation, and other related industries. Thus, when you invest in gold ETFs, your investment automatically gets diversified.
A: The most significant advantage is liquidity. You can exit from the investment anytime, and you can get cash in return. However, liquidating physical gold can become an issue as you will have to approach a jeweler store and sell the gold. Moreover, liquidating physical gold is often considered a loss, but liquidating gold ETF is like liquidating any other investment.
A: Compared to physical gold, you do not have to pay VAT for gold ETF. Similarly, you will not have to pay wealth tax. It falls under long-term Capital Gains, and hence the gold ETFs are not taxable.
A: You need to open DEMAT account with a reputed Bank. Your stockbroker or fund manager can help you with the process. After that, you can log in to the financial institution's website and select the gold ETF offered by a particular company. You can then purchase ETFs of the specified number of units. You will get confirmation over email once the purchase has been completed.
A: In the case of direct gold, you will have to pay the jeweler to purchase the ornament, and you will be paying additional charges such as making charge, VAT, and service charge. However, when you purchase gold ETFs, you bypass all of these issues, but you become the owner of the equivalent value of gold. Moreover, you can earn more by trading in gold ETFs, whereas the physical gold will not be productive. Thus, gold ETFs are a better investment compared to physical gold.
A: The price of gold ETFs is dependent on market volatility. However, the price of gold never plummets so low that your investment will be a complete loss. Therefore, the chances that your investment will be a complete loss are rare.
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