Gold ETF

Gold ETF
Source: Tavaga

A gold ETF is an exchange-traded fund that has Gold as the underlying asset, tracking the benchmark or spot price of physical Gold. It is a passive investment fund traded on an exchange.

How does a Gold ETF work?

The money spent on a unit of gold ETF goes towards buying standard gold bullion of 99.9 percent purity of 24 carats.

Why should you invest in a Gold ETF?

It helps an investor to avoid the hassle of actually buying the physical Gold and storing it. The unit price of Gold ETFs is almost similar to the Physical Gold available in the market. By buying Gold ETFs, you can generate returns without having any inconvenience. 

Is it safe to buy Gold ETFs?

Gold ETFs are generally considered as one of the safest options to invest as the price fluctuations are not high as compared to other options. The underlying asset i.e., Gold is one of the most precious metals whose value does not depreciate significantly. Therefore, there is a low risk and better returns. 

How to sell/redeem gold ETF?

Using a Demat account and trading account, a broker can sell gold ETFs at the stock exchange. ETFs are best used as a mechanism to profit from the price of gold rather than to gain access to physical gold because one is investing in an ETF that is backed by physical gold. Therefore, one receives payment based on the local market price of gold when liquidating Gold ETF Units.

Difference between Gold Funds and Gold ETFs

  1. One does not need a Demat account for Gold funds, as is the case with Gold ETFs. 
  2. Gold ETFs are more liquid as compared to Gold Funds
  3. Gold Funds can invest in Gold through the SIP route, but Gold ETFs cannot do that
  4. The convenience fee in Golf fund is 1.5% which is higher than that in Gold ETFs i.e., 1%

However, the returns are almost similar, and both invest in physical Gold only. Dividends are only distributed in Equity Gold ETFs.