Gold ETF – Know All About It!

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  • 23 Jan 2023
Gold ETF – Know All About It!

Purchasing and safeguarding tangible gold, whether kept at home or in a bank vault, has become a standard practice in the majority of Indian households. However, this practice poses challenges such as limitations on storage capacity and worries about theft.

In contrast to relying solely on physical gold for investment, an alternative has emerged in the form of Gold ETFs. Many Indians choose to store gold in the shape of ornaments, with a large amount being gifted and worn during various auspicious occasions.

  • Investors can buy and sell Gold ETF shares on the stock exchange, offering accessibility and convenience in trading activities.

  • Gold ETFs provide a platform for portfolio diversification, serving as a hedge against market volatility and adding stability to an investment portfolio.

  • High liquidity ensures ease of buying and selling, making Gold ETFs a flexible option for investors seeking efficient trading activities.

A Gold ETF, also known as an Exchange Traded Fund, is a Mutual Fund linked to commodities, specifically investing in assets such as gold. These funds operate much like individual stocks and are traded on the stock exchange.

Exchange traded funds portray assets, like physical gold, in both dematerialised and paper formats. Investors engage in stocks rather than the physical metal, and when traded, they receive the equivalent cash value of the units instead of actual gold.

Despite being categorised as a commodity-based traded fund, gold ETF funds also function effectively as an industry exchange-traded fund. This presents an advantageous investment strategy for diversifying a financial portfolio and gaining exposure to various sectors such as gold mining, manufacturing, and transportation. These traded funds offer a relatively simple means of investment, providing an easier entry point into the gold industry.

Moreover, top-performing gold ETFs can serve as a hedge against market fluctuations, serving as an alternative to insurance within one's investment portfolio. For example, investors can utilise short-term exchange traded funds to mitigate potential losses in case the price of gold experiences a sudden decline. These traded funds are recognised as among the top defensive assets in the market. They share similar characteristics with bonds, as many investors utilise them to safeguard their investments against economic fluctuations in extreme scenarios such as currency devaluation. Investing in a gold ETF provides an opportunity for individuals to capitalise on sudden declines.

Each unit of these funds represents 1 gram of 99.5% pure gold, making them particularly suitable for long-term investments, especially when individuals choose to invest large amounts or engage in systematic trading.

Gold ETFs are ideal for investors aiming to monitor and reflect the real time price of gold. For those who prefer not to possess the physical commodity but seek to enhance their earnings through trading in precious metals, investing in these specific exchange traded funds is recommended. They offer a significant chance to gain market exposure, reflecting both the price and performance of actual gold.

In recent years, traded funds linked to gold have exceeded the performance of standard stock indices, rendering them an appealing investment choice for risk-averse investors. Additionally, gold exchange-traded funds impose a brokerage fee ranging from 0.5% to 1%, making them well suited for individuals seeking to minimise commission charges and save more on their investments.

There are certain things you need to be aware of while investing in Gold ETFs they are explained as follows.

  • Consistently investing a large amount in trading Gold ETFs has the potential to yield higher profits compared to alternative investment vehicles linked to gold as the underlying asset.

  • Opt for Gold ETFs with high liquidity. Higher liquidity ensures ease of buying and selling in the market without significant impact on the ETF's price. This is particularly important for investors looking for flexibility in their trading activities.

  • Monitor market trends and economic conditions closely. Gold prices are often influenced by factors such as inflation, interest rates, and geopolitical events. Understanding these dynamics can help in making informed investment decisions.

  • Consider how Gold ETFs fit into your overall investment portfolio. Diversification is key to managing risk, and gold can serve as a hedge against market volatility. Assess how gold fits into your broader investment strategy.


A Gold ETF (Exchange-Traded Fund) stands out as a versatile and accessible investment vehicle that allows individuals to gain exposure to the precious metal without the complications associated with physical ownership.

Their accessibility, cost-effectiveness, and alignment with modern investment preferences collectively make Gold ETFs a conclusive platform for investors looking to incorporate the stability and growth potential of gold into their portfolios.

Gold ETF may be a good investment option. There is no risk of theft or storage costs, making them a safe investment. Gold ETFs also act as a hedge against inflation and market volatility. This offers stability. However, they are subject to market conditions and are less liquid. So, consider your financial goals while investing in gold ETF.

No, gold ETFs are not tax-free in India. Short-term capital gains tax is applicable if you hold them for less than 3 years. The taxes are applicable based on the income tax slabs. On the other hand, a long-term capital gains tax of 20% is levied on holding gold ETFs for more than 3 years.

ETFs are traded on stock exchanges. So, they are a low-cost investment and provide liquidity. Conversely, mutual funds may provide higher returns. They also allow investing in various diverse assets. However, there is an expense ratio and other costs. You may choose between the two financial instruments based on your requirements.

Gold ETFs don't pay traditional dividends like stocks. Instead, any income generated, such as from lending gold, is usually reinvested in the fund.

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