Gold has been part of Indian life for centuries, treasured at weddings, festivals and family milestones. Yet keeping it at home brings worries about theft, purity and the cost of making ornaments. Many first-time investors wonder what is Gold ETF is and whether it can ease those concerns. The idea is easier to grasp than most people expect, and it fits neatly into the accounts that millions of households already use for shares. Once the concept is clear, the practical question of how to invest in gold ETF becomes a matter of following a few straightforward steps.
The Idea in Simple Terms
Exchange Traded Funds are pool investments that are traded on the stock exchange. The fund house will purchase pure gold bullion and store it safely with an independent custodian. Each unit you purchase will represent a specific quantity of the metal and your units will be priced based on the price of gold in the country minus a little bit for an expense ratio.
The creation of these funds are regulated by the market regulator. Fund houses have rules to abide to regarding transparency, valuations and custodianship. Although you will never physically see or touch the metal, you will have a claim on it through owning units. As they are traded on the National Stock Exchange and Bombay Stock Exchange, you can easily sell your units on during market hours.
Some funds have been designed where each unit represents approximately 1 gram. However newer funds can have smaller amounts, which means the price per unit will be cheaper. This makes them easier to get into if you are investing small amounts. Always check the fund fact sheet to see what a unit actually is.
Getting Started:
These require very little to set up. You will need your PAN card, your identity verified with your Aadhaar, a bank account and a mobile number. From here, you can open a demat account; this is where your units will be stored electronically. You also need to open a trading account. Most registered brokers will allow you to open accounts online; this can be done in a few days.
Carefully choose which broker you wish to go with. Look at the account opening fees, annual fees, delivery brokerage and app quality. Ensure they are registered with the market regulator. Never give anybody who claims to be a representative your password or one-time codes. Add a nominee to your account to make it easy for your family to claim your units in case anything happens.
You will need some funds in your linked bank account. Once you have transferred money into your trading account you can place an order. Start small!
Placing your first order:
Once you have downloaded your brokers app you can search for the fund by name or ticker. There are a few fund houses that offer these types of funds. Take a few minutes to look through them. Look at the expense ratio, size of fund, average daily volume and bid/ask spread. The more active the fund the better prices you will get.
Look at the indicative NAV which many apps have. This shows you the relationship between the market price and true value of gold. If the price is very different then you should hold off. Choose how many you would like to purchase and select a limit order. This means you can choose what the maximum price you want to pay is. This helps avoid any sudden spikes, particularly with low liquidity funds.
You can place an order during the week when the exchanges are open. This is typically during the morning until mid afternoon. The units will be placed in your demat account after your order has gone through, following the normal settlement period. You will also receive a contract note showing you the price, quantity and charges. Store this somewhere safe.
After Purchasing:
Avoid frequently checking the price of your purchase. Gold can fluctuate in the short term. Think of gold as an investment for the long term to provide stability to your savings.
Many investors like to invest in chunks. This means investing a set amount every month or quarter. This helps to spread out your purchases and removes the pressure of trying to find the perfect time to invest. Some brokers allow recurring orders.
Under current rules any profit made on listed units held for over twelve months will be considered a long term gain and will therefore be charged at a reduced flat rate. If held for less than twelve months then it will be charged at your income slab. Tax rules do change so ensure you speak with a qualified tax professional to confirm what the current rules are before selling.
Every year take a look at your holdings. Ask yourself if the amount you have invested is suitable for your goals. Does it make up a sensible amount of your portfolio? Gold does not earn any interest or dividends so should be used to provide stability to your wealth during uncertain times. As long as you know why you are investing, with a trustworthy broker and patience you can feel comfortable with owning gold in your demat account.
