Demand for physical gold has drastically fallen in India as well as China, the world's biggest buyers of gold in the form of bars, coins and jewellery as the coronavirus pandemic paused imports and reduced footfalls at jewellers.
According to a Bloomberg report citing forecasts by precious metals consultancy Metals Focus Ltd, China's gold consumption in 2020 is expected to fall 23 percent and India's demand by 36 percent.
India, which is dependant on imports for almost all of its yellow metal demand, saw a 99 percent decline in gold imports in April and May, amid lockdowns, job losses and subdued consumer spending on weak economic growth prospects.
Amid such a fall in demand for physical gold, spot gold surpassed the $1,800 level on Wednesday and consequentially, gold prices in India hit a new all-time high of Rs 49,348 per 10 grams on MCX.
The rally is largely due to increased buying seen in gold ETFs in the west, as investors looked for safe-haven assets amid uncertainty induced by the pandemic. In 2020, so far, global net inflows into gold-backed exchange-traded funds (ETFs) have almost touched $39.5 billion, according to the World Gold Council. This beats the previous full-year record of $23 billion seen in 2016.
While prices of the precious metal are high at the moment, many analysts continue to remain bullish on the metal and are expecting spot gold to touch $2,000, its new all-time high, this year.
If you wish to bet on this safe-haven asset, whether to make short terms gains or diversify your investment portfolio, you can do so with gold ETFs. As an Indian investor, there are multiple gold ETFs listed on NSE that you can choose from.
What are gold ETFs?
Gold ETFs (exchange-traded funds) are like mutual funds as they derive their value for an underlying asset (gold in this case) but in contrast, these instruments can be bought and sold at live markets from stock exchanges. Their valuation is based on the gold price, allowing you a way to own gold in virtual form.
To put it plainly, if you were to invest in one unit of gold ETF, you will be investing in one gram of high-quality gold in demat form.
You do not have to worry about storage or purity of the metal.
It is a liquid instrument. You can sell or buy an ETF from the stock exchange during trading hours (9:15 am to 3:30 pm) at a price that suits you.
It is simple to understand. The movement of its price will be the same as the gold price. There is no company, government or interest-earning appeal that dictates the prices of the precious metal. This ensures transparency.
There is no lock-in period.
You can purchase as little as one unit.
No entry or exit load.
Compared to making charges, jewellers' margin and other associated costs that come with physical gold, expenses associated with ETF are lower.
How to Invest in Gold ETFs?
You need to have a demat and trading account. Buying gold ETF is same as buying a company's equity share from the stock exchange. Pick a gold ETF listed on NSE or BSE and purchase it at market price. You will have to pick a number of units like you would pick a number of shares and place the buy order.
The units will be credited to your demat account in T+2 days. Apart from lumpsum, asset management companies also allow you to invest in their ETFs through systematic investment plans (SIP).
Gold ETFs on NSE
Gold ETFs have been trading on Indian stock exchanges for around 13 years. There are a little over 10 gold ETFs listed on NSE.
Issuer of ETF
Axis Mutual Fund
Axis Gold ETF
Birla Sun Life Mutual Fund
Birla Sun Life Gold ETF
Canara Robeco MF
Canara Robeco Gold ETF
HDFC Mutual Fund
HDFC Gold Exchange Traded Fund
ICICI Prudential Mutual Fund
ICICI Prudential Gold Exchange Traded Fund
IDBI Gold ETF
Kotak Mutal Fund
Kotak Gold Exchange Traded Fund
Quantum Mutual Fund
Quantum Gold Fund (an ETF)
Reliance Mutual Fund
Reliance Gold Exchange Traded Fund
Religare Mutual Fund
Religare Gold Exchange Traded Fund
SBI Mutual Fund
SBI Gold Exchange Traded Scheme
UTI Mutual Fund
UTI GOLD Exchange Traded Fund
Reliance Nippon Life Asset Management Limited
Reliance ETF Gold BeES
Things to note
Gold ETFs should be looked at as an investment to diversify one's portfolio and put not more than 10 percent of the total investment in this form. These are ideal if you are looking for gold or mutual fund investment options that allow you to transact during trading hours.
Ideally, a long-term horizon will fetch good returns.
There charges of the expense ratio and broker costs associated with the purchase and sale of gold ETFs.
Gains from investments in gold ETFs are treated as gains from non-equity instruments for income tax calculation purposes. This means that when held for less than 36 months, these will be considered as short-term investments and taxed as per your income tax slab. If held for over 36 months, gains will be taxed at 20 percent after providing for indexation.
Choice of gold ETF does not make a major difference as all of the funds have a common underlying asset- gold. You could pick an ETF based on expense ratio and other costs, convenience and reputation of the mutual fund house.
The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.