What is gold ETF and how to invest in it ?
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Turn on more accessible mode. Turn off more accessible mode. FG Publishing Summary 1. It goes beyond festivals and special occasions. What is restrictive is that normally we tend to accumulate the metal as physical gold and jewellery and that has many limitations and costs associated with it. However there are more convenient opportunities to invest in Gold, such as gold exchange-traded funds ETFsfund of funds FoFs.
So make this Akshaya Tritiya different — choose a more convenient way to invest in Gold. Gold could be a ray of hope during volatile markets. Further, gold enjoys a lower correlation with other asset classes such as equity and debt and can act as an effective hedge when markets turn volatile. As seen in Chart 1, investment concentrated towards single asset class like gold and equity can fetch better returns but also brings in greater risk.
Investing only in debt can give stability to the portfolio but not higher-inflation adjusted returns. Hence, investors should diversify investment across debt, equity and gold which have potential to offer better returns and spread the overall risk to a greater extent.
Investment in physical gold exposes one to the risks of theft, impurity and price uncertainty. Comparatively, paper gold investments offer greater price transparency and negate the risks of storage and theft. There are two investment options: Their objective is to provide returns which, before expenses, closely correspond to returns provided by the local price of gold.
However, performance of gold ETFs may differ from that of the price of gold due to expenses and certain other factors. Investors need to pay fees for fund management, demat facilities and other related charges. Gold FoFs offer all the benefits provided by gold ETFs - no risk of holding physical gold, affordability and liquidity.
Investors need to pay fees for fund management. Unlike gold ETFs, investing in gold funds does not require a demat account. Gold FoFs are more liquid than gold ETFs as investors can directly surrender units to the fund house whenever they wish to and get the redemption.
To reiterate, gold is a good risk diluter thanks to its low correlation with other asset classes. Investors would, however, be better off investing in the asset class in a disciplined manner in the paper form as per their risk-reward profile.
Investors should consult their financial advisers before taking any investment decision. Mutual Fund investments are subject to market risks, read all scheme related document carefully.