Gold has always been a trusted investment option for Indian households. From jewellery to coins and bars, gold is seen as a symbol of wealth, security, and stability. However, with the increase in price of almost all precious metals including gold and silver, many are giving second thought to buy physical gold and moving over to gold traded funds. Many have same question: Is Gold Traded Funds an alternative to physical gold?
In this blog, we will explore what Gold ETFs are, how they work, and whether they can truly replace traditional gold investments. Can gold be used as pension plan asset?
What Is a Gold ETFs?
A Gold Exchange-Traded Fund (ETF) is an investment vehicle that tracks the price of gold and is listed for trading on stock exchanges such as the National Stock Exchange and the Bombay Stock Exchange. A unit of gold Exchange Traded Fund represents 1 gram of gold of high purity (99.5% and above).
Gold ETFs are gold in physical form, where one can invest in gold without physically holding gold in their accounts.
Why Investors Are Looking Beyond Physical Gold
While physical gold has emotional and cultural value in India, it comes with several challenges:
- Storage and security concerns
- Lower liquidity during urgent selling
- Purity-related issues
- High making charges in jewellery
- Risk of theft
These drawbacks have encouraged investors to consider modern and efficient alternatives like Gold ETFs.
Taxation on Gold Traded Funds in India
Gold ETFs are taxed similarly to physical gold:
- Short-term capital gains (STCG): If sold within 12 months, gains are added to your income and taxed as per your slab.
- Long-term capital gains (LTCG): If held for more than 12 months, gains are taxed at 20% with indexation benefit.
This makes Gold ETFs tax-efficient for long-term investors. Gold ETFs make a good asset when considering the volatility of market due to different worldly events.
Who Should Invest in Gold ETFs?
Gold ETFs are ideal for:
- Investors looking for portfolio diversification
- Those who want gold exposure without physical handling
- Long-term investors aiming to hedge against inflation
- Digital and market-linked investors
However, for ceremonial or emotional purposes, physical gold may still hold value as physical gold is considered as pure.
Investors who are looking for portfolio diversification could invest in gold traded funds as they are bound to go in the negative direction of market trends. It is seen that whenever, there is a market downturn we find the gold is moving in upward direction as government around the world are interested in buying gold during such scenarios to stabilise their economies.
Any individual interested in acquiring gold without exposing to physical gold should opt for gold etfs as they are more secure and comes without the risk of theft which is always present in physical gold.
Can Gold Exchanged Funds (ETF) acts an an alternative gold for consumers?
From investment perspective, the answer is yes as ETF has many advantages over physical gold. These investments can result in very long term benefits for the investment holder.
Get yourself secured with our investment planning ideas which include investment in ETFs, so that you can be stress free from rising price of gold.
