Gold exchange-traded funds: India's top picks

Summary:

In the world of investing, Gold exchange-traded funds (ETFs) offer an accessible and transparent way to own gold. Backed by high-purity gold, they bypass the complexities of physical gold ownership. These ETFs reflect gold prices and can be traded on stock exchanges. Gold ETFs offer advantages such as price transparency, ease of trading, and tax benefits. Before investing in Gold ETFs, you should carefully consider factors like investment duration, trading size, fund performance, demat account ownership, and tax guidelines.

A gold ETF serves as a viable alternative to owning physical gold.  It is a type of commodity exchange-traded fund, with its sole underlying asset being gold. ETFs are comparable to individual stocks. They operate and trade on the stock exchange. Each unit of a gold ETF represents one gram of gold. And if your foremost concern when investing in gold is ensuring its purity, you can set aside your worries. Each unit of gold ETFs is backed by gold bullions of 99% purity or above. These gold ETFs in India are traded on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

In this guide, we'll delve into the realm of the best gold ETFs in India, allowing you to curate your golden investments.

Navigating the Indian gold ETF landscape

Investing in physical gold can be complicated and risky. This is where gold ETFs come in. They offer you a way to invest in gold, without the need to possess any physical gold. Here’s how it works. Think of a gold ETF as a stamp collection that's filled with valuable pre-Independence stamps. As the value of the overall stamp collection rises, each individual stamp also grows in value. This stamp collection is like a special mutual fund. It is designed to hold multiple stamps. Similarly, the significance of your share within the gold EFT gets amplified as the fund’s value rises.

But as you step into the realm of gold ETF investments, a few factors should remain at the forefront of your decision-making process. For instance, pay attention to your: 

• Duration of investment: Given that gold often yields low annual long-term returns, it is better suited to short to medium-duration investments. Investors can expect an annual return of at least 9-10% when investing in the precious metal for a period spanning 9-10 years. Its historical performance suggests that it might not provide the substantial growth potential of riskier assets but can offer stability within certain investment horizons. This makes it an attractive choice for those seeking relatively steady returns within a specific timeframe.

• Size and frequency of trading: Gold ETFs can be a wise choice if you're planning to invest a substantial amount of money or if you're looking to engage in frequent trading. Why is that? As discussed above, they are suited to short or medium-term investments. Additionally, they are easy to trade in the stock exchange making them a convenient option for those engaging in frequent trading activities. Investors also have the option of purchasing gold ETFs in increments of one unit, providing greater affordability compared to jewellery or coins and bars that demand larger expenditures. Financial experts, however, recommend allocating only 5-10% of your portfolio to gold ETFs. This strategy helps maintain a stable investment foundation and ensures consistent returns.

• Demat account: When you buy physical gold, you need to think about storage – and that often comes with added costs if you're considering using a locker. Plus, buying physical gold usually involves various charges and costs. Gold ETFs sidestep these issues. They offer a cost-effective way to invest in and own gold. Since the gold is held in dematerialized (Demat) form, you don't need to worry about security either. You can also consider a systematic investment plan (SIP) to gradually build your exposure to gold. For those who don't have a Demat account, initiating a SIP is a viable option.

• Fund performance: Gold ETFs offer a significant advantage in terms of price transparency. Their units are listed on exchanges and reflect the real-time fluctuations in gold prices. This transparency allows investors to align their purchases with prevailing prices, unlike jewellery and bullion. Similarly, selling can be equally advantageous, as it enables investors to make the most of live gold prices for a favourable outcome. So, when considering a gold ETF, don’t rely solely on its pricing as your deciding factor. Instead, take a closer look at the fund's performance over recent years to gain insights into its current trajectory.

• Taxation benefits: Did you know that only gold ETF units held for over three years are tax-eligible as long-term capital gain? Moreover, it is subject to a 20% tax rate with an indexation benefit – a mechanism used to adjust the purchase price of an investment to reflect the effect of inflation on it. For holding periods of less than three years, short-term capital gain tax applies, based on one's tax slab. This provides investors with the added advantage of enjoying tax benefits. 

Exploring the finest gold ETFs in India: An overview

Considering the criteria outlined earlier, here's a selection of gold ETFs in India that you might consider for investment purposes. It's important to note that this list is for guidance only. Prior to making any investment decisions, we recommend conducting further research and seeking expert opinions to ensure informed choices for your investments.

• HDFC Gold ETF: Designed to closely mirror the performance of gold, with considerations for tracking errors, the HDFC Gold ETF emerges as a top contender for the best gold ETF in India. With a track record spanning 13 years, this ETF has managed to deliver an impressive return of 8.36% since its inception.

• SBI Gold ETF: This gold EFT is mandated to allocate its assets in physical gold and potentially other mutual funds and ETFs that invest in gold. As a result, you can expect it to deliver returns that closely align with the performance of gold prices. With a history of 14 years and 4 months, SBI Gold ETF has exhibited a return of 9.09%.

• ICICI Prudential Gold ETF: This open-ended commodity scheme is well-suited for long-term investments, making it an ideal choice for those seeking a strategy for long-term wealth creation. The scheme aligns with domestic gold prices derived from the London Bullion Market Association and has delivered 7.96% returns since its creation.

• UTI Gold ETF: This gold EFT aims to generate returns that closely reflect the performance of gold, along with yield before deducting expenses. The UTI Gold ETF fund of funds (FoF) - Regular Plan is actively managed and has delivered 14.67% returns in the last 10 months, since its establishment.

• Nippon India Gold ETF: This is yet another top gold ETF in India, striving to deliver returns closely aligned with the price of gold through investments in physical gold. It is the most liquid and actively traded gold ETF in India. Nippon India ETF Gold Benchmark Exchange Traded Schemes (BeES) is 16 years and 5 months old. It has delivered 10.62% returns since its inception.

Gold ETF in India: A pathway to fulfilling your financial goals

In the world of investing, gold ETFs stand out as a relatively worry-free option. They eliminate concerns about gold purity and offer a practical alternative to physical gold ownership, serving as a commodity-based fund with gold as its underlying asset. Like stocks, they trade on stock exchanges. And, considering the fact that gold EFT brokerage or commission fees typically vary from 0.5% to 1%, they are easy on the pocket. As you venture into the realm of gold ETF investments in India, partner with an experienced ecosystem expert to navigate these intricacies. Open a demat account to #InvestRightInvestNow. Make informed decisions for your financial goals with one of India's largest trading platforms by your side.

Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.