A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion.
Exchange Traded Funds
- An exchange traded fund (ETF) is a type of security that involves a collection of securities such as stocks, that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies.
- ETFs are in many ways similar to mutual funds; however, they are listed on exchanges and ETF shares trade throughout the day just like ordinary stock.
- Because there are multiple assets within an ETF, they can be a popular choice for diversification.
Gold ETF
- 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 combine the flexibility of stock investment and the simplicity of gold investments.
- Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company.
- When one actually redeems Gold ETF, they don’t get physical gold, but receive 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.
- Because of its direct gold pricing, there is a complete transparency on the holdings of a Gold ETF.
- Gold ETFs are ideal for investors who wish to invest in gold but do not want to invest in physical gold due to the storage hassles/ doubt about purity of gold and are also looking to get tax benefits.
- There is no premium or making charge, so investors stand to save money if their investment is substantial.
- They also provide for easy liquidity and can act as a hedge against inflation.
Recent Developments
- Gold ETFs witnessed an inflow in August, for the fifth month in a row, amid major economies staring at a recession due to the spread of COVID-19 pandemic.
- Gold, with its safe-haven appeal, has emerged as one of the best-performing asset classes and a preferred investment destination among investors.
Source: The Hindu & Economic Times
