Should you invest in Gold by ETFs rather than physical gold to build wealth?
Invest in Gold: “What is often forgotten is that there is a better form of investing in gold without having to worry about the safety aspect – through Gold ETF or paper gold.” Said by Expert.
Gold Exchange Traded Funds (ETFs) invest in gold bullion, which is equivalent to owning physical gold but is owned electronically. According to experts, investors can purchase as little as one unit, and the costs of doing so are much lower than investing in actual gold.
An Expert Says, “In terms of portfolio allocation, investors could consider allocation 10% to the yellow metal. Also, in the current lockdown, it is easy to purchase Gold ETF from the comfort of your home through the website or mobile apps.”
Why should one invest in Gold ETFs rather than physical gold to build wealth?
Industry experts say that ensuring an ideal asset allocation is critical for long-term wealth formation, and gold is one of the asset classes that should be included in any portfolio.
An Expert says, “When it comes to investing in gold, Gold ETFs offer multiple advantages. Gold ETFs allow investors to take exposure to gold in a cost-efficient manner. One need not worry about the purity of gold, storage hassles, east to transact as one can buy and sell on the exchanges, anytime during the trading hours of the day.”
When compared to actual gold, here’s how Gold ETFs fare
Here is how Gold ETFs stack up when compared to physical gold;
|Parameters||Physical Gold||Gold ETFs|
|Investment||Available in the standard denomination of 1/10gms||No standard denominations here. Starts with as low as 1gm unit which is around Rs 50.|
|Making charges||10-20% of the total cost||No making charges|
|Purity of Gold||No guarantee on Purity||99.5% purity of gold|
|Pricing||Pricing is never uniform, varies from jeweller to jeweller||Pricing is per international standards and is transparent. No room for variable pricing|
|Wealth Tax||One per cent wealth tax is applicable if the value of physical gold possessed by an individual is more than INR 30 lakhs||Not applicable|
|Returns||Is calculated as follows: Current price of a gold minus buying price plus making charges of an ornament||Return is calculated by taking the current NAV (the price of a gold unit trading on the stock exchange) minus purchase NAV|
|Storage Cost||The cost incurred on bank lockers||None. Units of ETF are held in electronic/ Demat form|
|Liquidity||Can be purchased from jewellers or banks, but the exchange is possible only through jewellers||Buying/selling of the gold ETF is much easier as it is traded on the stock exchanges – NSE and BSE|
|Short Term Capital Gains||If held for less than 3yrs, then short-term Capital Gain tax is as per the Income Tax slab||Same as physical gold|
|Long Term Capital Gains||If sold on profit after 3yrs then a capital gain tax of 20% with indexation is applicable||Same as physical gold|
Read Also: How to start investing in stock market?
Gold has been growing rapidly again since falling to around Rs 10,000 from record highs a month ago. However, experts believe that another covid wave might give Gold a boost, so is now the right time to invest in it?
An Expert says, “Post the recent correction, we are positive on gold on relative valuation with equity and debt. Since there is a possibility of inflation spiking and given that gold acts as a hedge against inflation, investors can consider around 10 per cent allocation to gold in their portfolio.” According to experts, one may consider investing via the SIP route depending on one’s needs.
Monthly flows in Gold ETFs increased by 35% (MoM) in March 2021, According to the latest AMFI results. Investors seem to have turned their attention to Gold ETFs, according to the study. This is true because, Expert adds, “with the rise in uncertainty brought about by the second wave of the pandemic, it is very likely that savvy investors would have increased their allocation to the yellow metal.” During times of volatility in India, gold is considered the go-to asset class.
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