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Tag: gold ETF

  • What are GOLD ETFs? When should you buy them?

    What are GOLD ETFs? When should you buy them?

    For centuries gold has proven to be a safe investment bet. Indians, when compared to people in the rest of the world, have felt great comfort when investing in this yellow metal. Often, this investment is in the form of jewelry and not other digital forms like Gold ETFs or Bonds. Although, investment in physical gold has created other challenges for us. As India does not produce gold in significant quantities, we have begun to rely on imports.

    People began to accumulate Gold for safety purposes as their Long-term investment strategy. Some professionals today say that Gold is a great tool to hedge against inflation. Large scale gold imports, especially for investment created a higher Trade Deficit (this happens when imports far exceed exports). When this happens the rupee comes under pressure and tends to weaken. This sets off many more problems for the Indian economy.

    To avoid this situation and push people to look beyond investing in just Physical Gold, the Government of India came out with Gold Exchange Traded Funds (ETFs) apart from Sovereign Gold Bonds (SGB).

    Now….What is a Gold ETF?

    A Gold ETF is an exchange-traded fund that aims to track the domestic price of physical gold. In other words, Gold ETFs are units representing physical gold either on paper or in dematerialised forms. Typically, one Gold ETF is equal to 1 gram of gold. Meaning, 1 unit of Gold ETF is backed by an equivalent quantity of physical gold. Gold ETFs give you a combined benefit of investing in Stocks as well as Gold.

    They are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE). And just like the stock of any company that can be bought & sold continuously at market prices, Gold ETFs can be treated the same way.

    However, when you actually sell your Gold ETF, you don’t get physical gold, but receive the cash equivalent of the market price.

    How are Gold ETFs Beneficial to you?

    • Transparency – The biggest benefit is the transparency in pricing as it is directly linked to the price of gold. 
    • Cost – ETFs incur far lower expenses compared to physical gold where one ends up paying wastage charges, making charges, safe storage cost etc. 
    • Safety – Unlike physical gold the investor need not worry about the investment’s safety. ETFs not only fetch the same return as physical gold but are also a lot safer than its physical form as there is no fear of theft or depreciation.
    • Loan – Gold ETFs can be placed as a collateral to secure loan from any financial institution.

    Where can you purchase Gold ETFs?

    Gold ETFs can be purchased through a stock broker like Zerodha, Sharekhan and other investment apps. You will have to pay a small brokerage or fund management charges while buying or selling Gold ETFs. As  mentioned earlier the overall cost is much lower than what an investor incurs in buying physical gold and there is NO better time to invest in Gold than today.

    Gold ETFs Vs. SGB

    Many of you might have a pondering question on how Gold ETFs are different from SGBs. Well here’s our take of the same. 

    gold etfs

    The advantage that ETFs have over SGB is that they are more liquid. They can be sold at any given time like stocks. An investor need not hold onto their investment for a fixed period. Although ETFs are taxable.

    If you prioritize your investments based on safety and liquidity, then Gold ETFs are your safe haven.

  • Is It The Right Time To Start Gold Investment?

    Is It The Right Time To Start Gold Investment?

    Gold Investment is considered to be an all weather investment. More than an investment, Gold is treated as an insurance for all the other investments. It is a hedge against inflation.

    During an economic downturn while asset classes such as stocks, mutual funds and real estate may tumble, Gold would still sustain and outperform them. This is the reason why portfolio managers always insist on having a fair share of your investments in gold.

    Gold_Investment

    Today, we see the stock markets across the globe have become more volatile due to geo-political tensions with Russia- Ukraine conflict and stringent covid-lockdown in China. Fears of economic recession and increase in Fed rates has created the perfect situation for gold to skyrocket again.

    Is this the right time to invest in gold? Ideally, yes. Stock markets are down, cryptos have crashed and real estate is yet to recover. Gold at its present value looks attractive. Experts believe people will shift their focus to gold if stock don’t recover soon.

    Gold’s performance in the last 20 years

    The annualized return from march 2000 to march 2020, Nasdaq 100 had a return of 2.5 percent, S&P 500 gave a return of 4 percent whereas gold gave a return of almost 9 percent. 

    In 2020, gold delivered an annual average return of 24.6 percent. Over the last 40 years gold provided an average annual return of 9.6 percent and negative returns only at 8 instances. 

    Stock Vs Gold performance during the economic crisis

    During the 2008 global financial crisis, while the stock market fell as much as 60 percent, gold remained unaffected and in fact it grew by 6 percent. The same would be visible with multiple other crisis situations like the East-Asian crisis. 

    This clearly indicates that gold is a safe bet when it comes to economic downturns. 

    How to start gold investment? 

    There are multiple options to invest in Gold like buying physical gold, Gold ETFs or Sovereign Gold Bonds (SGBs). 

    • Physical Gold can be purchased in the form of coins or bars. Buying jewelry isn’t an investment.
    • A gold ETF is a type of ETF that can be purchased or sold on a stock exchange like any regular stock. The option eliminates storage costs & security risks of holding physical gold but comes with an expense ratio and Capital gains tax.
    • SGBs are substitutes for holding physical gold. SGBs are less risky as they are guaranteed by the government. But there is more to add, these bonds offer 2.5% interest and NIL Capital Gains tax if they are redeemed by completing the term(8years).

    Options like SGBs and Gold ETFs are termed as Paper-Gold which obviates the need to buy physical gold and store them while assuring the same return.

    If the World Bank & IMF are to be believed, the global economy is slowing down significantly due to covid and geo-political tensions. Global trade has shrunk. And stocks, mutual funds, cryptos, real estate will see a major correction. Smart investors looking for better investment options would definitely find gold as their best bet. So it’s time for you to become smart by starting to invest in gold.