Gold ETFs In India And Other secrets Your Family Doesn’t Tell you

The amount of Gold ETFS bought in India are well- financed. Gold is mostly used in the form of jewellery on special occasions. A buyer’s mind retaliates it to an investment. The gold will always increase in value in the coming years. No wonder, it’s India’s favourite investment options over the years.

The spectacular rise in the price of gold during the last decade has rewarded all those who believed in the metal’s unique ability to remain in demand. For those who weren’t concerned about gold as an investment option, it was a lesson learnt the hard way! How does one go about investing in gold? Explore and tap the exact market value of gold today! Is buying gold in ornament form the best way to invest or are there better options available? What is the tax impact of buying and selling gold?

How Gold ETFS work as an investment?

Gold ETFs are an interesting format to invest in gold. These funds invest in gold- almost like sectoral mutual funds in stocks . They belong to a particular sector-banking, pharmaceuticals.. Like mutual funds, you can buy units of Gold ETFs. The price of each unit of fund is linked to the price of gold at that particular time. This way, no matter how the price of gold fluctuates, if you invested in X grams of gold, you’ll get the price of X grams when you sell the units.

Following is an example to understand how exactly it works ….

Analysis of Gold Etfs:

Assume that you want to invest Rs. 50,000 in Gold ETFs when the price of gold is Rs. 2500 per gram. If each unit of GETF is priced for 1 gram of gold, the price of one unit would be Rs. 2500. In this case, you would get 20 units. After a few months, if the price of gold rises to Rs. 3000, the GETF price will now become Rs. 3000 per unit. If at this date, you decide to sell your funds, you’ll get Rs. 60,000 back. If you were to now go and purchase physical gold in the market with this amount, you’d be able to buy 20 grams at the current market price. That’s the same amount of gold (20 grams) you would have got if you had bought gold for Rs.50,000 at Rs. 2500 per gram, earlier.

Inferences :

As this example shows, the value of your investment gets directly linked to the price of gold. Your investment in a Gold Exchange Traded Fund moves up or down depending on the movement of the gold price, thus allowing you to buy the same amount of gold you hold in the fund at any point of time.

If gold price reduces to Rs. 2400 per gram, then in the above-mentioned case, the price of each GETF unit would become Rs. 2400 and you would get back Rs. 48,000. At the prevailing gold price, you’d be able to buy 20 grams of physical gold with that amount. Investing in GETF is thus almost like buying gold but in a safer and easier way, as you don’t have to physically store your gold.


However, as GETF is a type of mutual fund, you’ll have to bear some additional expenses like operational costs.- around 1-2% and the brokerage- 0.5%. Because of these costs, the price of one GETF unit may not be exactly a replica of the market price of 1 gram of gold as explained in the above example. Do check out the various Gold ETFs in the market to find out which has the lowesr expenses and is closest to the prevailing gold price. The costs incurred in investing in Gold ETFs will still be much lower than one you lose on making charges -around 5-20% when you sell a gold ornament of equivalent weight. Explore the world of stealthy investments-

Gold ETFS are in unit structured weight available at market index.
Gold ETFS- 1000g

Although Gold ETFs are open ended mutual funds, they are traded on the stock exchange just like shares. So, while you cannot buy open-ended mutual fund units on a stock exchange, you can buy and sell GETF units through the stock exchange. This is the important difference in a way that Gold ETF works that you should be aware of as it makes buying and selling units really simple. Overall, these are the advantages of buying Gold ETFs over gold bars and coins.

Important deductions:

  • You don’t have to buy gold physically and keep it in a locker. You can just buy Gold ETF units and sell them whenever you want to buy physical gold.
  • GETF units can be bought in small amounts of 1 gram. Since the NAV directly tracks domestic gold prices, you will be paying standard rates.
  • You don’t incur any making charges. The fund management charges of 1-2% while brokerage of 0.5%
  • To buy and sell Gold ETF units, you only need to have a demat account , also used to trade stocks. This is much easier than visiting a jeweller or a bank and buying and storing physical gold.

Deductions on exclusions:

  • Since Gold ETFs are passively managed funds, operating costs will be low. The best managed funds will have costsaround 1%. You should still factor in it.
  • As there are very few agencies involved, you’ll rarely find anyone educating investors about Gold ETFs. The acceptance of Gold ETFs is an alternative to physical goods is still low in India.
  • If you sell Gold ETF units before 3 years, the profit gets added to your income and you have to pay tax as per your income tax slab. If you sell after 3 years, you’ll have to pay long-term capital gains tax of 20% with indexation on the profit you make.
List of Equity ETFs listed on NSE
Issuer NameNameSymbolUnderlyingLaunch Date
Edelweiss AMCEdelweiss Exchange Traded Scheme – NIFTYNIFTYEESNIFTY 50 Index08-May-2015
ICICI Prudential AMCICICI Prudential NIFTY ETFINIFTYNIFTY 50 Index20-Mar-2013
Motilal Oswal AMCMOSt Shares M50M50NIFTY 50 Index28-Jul-2010
Quantum AMCQuantum Index Fund – GrowthQNIFTYNIFTY 50 Index10-Jul-2008
Religare AMCReligare Invesco NIFTY ETFRELGRNIFTYNIFTY 50 Index13-Jun-2011
Birla Sun Life AMCBirla Sun Life NIFTY ETFBSLNIFTYNIFTY 50  Index21-Jul-2011
ICICI Prudential AMCICICI Prudential CNX 100 ETFICNX100NIFTY 10020-Aug-2013
Kotak AMCKotak Banking ETFKOTAKBKETFNIFTY Bank04-Dec-2014
Motilal Oswal AMCMOSt Shares M100M100NIFTY Midcap 10031-Jan-2011
ICICI Prudential AMCICICI SENSEX Prudential Exchange Traded FundISENSEXS&P BSE Sensex10-Jan-2003
Reliance Nippon Life Asset Management LimitedReliance ETF NIFTY BeESNIFTYBEESNIFTY 50 Index28-Dec-2001
Reliance Nippon Life Asset Management LimitedReliance ETF NIFTY 100RELCNX100NIFTY 10022-Mar-2013
Reliance Nippon Life Asset Management LimitedReliance ETF Bank BeESBANKBEESNIFTY Bank27-May-04
Reliance Nippon Life Asset Management LimitedCPSE ETFCPSEETFNIFTY CPSE Index28-Mar-14
Reliance Nippon Life Asset Management LimitedReliance ETF Dividend OpportunitiesRELDIVOPPNIFTY Dividend Opportunities 5015-Apr-14
Reliance Nippon Life Asset Management LimitedReliance ETF ConsumptionRELCONSNIFTY India Consumption03-Apr-14
Reliance Nippon Life Asset Management LimitedReliance ETF Infra BeESINFRABEESNIFTY Infrastructure29-Sep-10
Reliance Nippon Life Asset Management LimitedReliance ETF Junior BeESJUNIORBEESNIFTY Next 5021-Feb-03
Reliance Nippon Life Asset Management LimitedReliance ETF PSU Bank BeESPSUBNKBEESNIFTY PSU BANK25-Oct-07
GETFs and exclusions

Tax Impact on Gold Etfs:

Earlier a tax of 1% was applicable when you bought gold jewellery worth Rs. 5 lakh or more. A similar tax was applied if you bought non-jewellery gold items- coins and bars etc.. worth more than Rs. 2 lakh in cash. In budget 2017-18, cash transactions above 2 lakh has been restricted. Purchasing Rs. 2 lakh or above in cash will therefore incur penalties.

Investments in physical gold also attract capital gains. If physical gold is sold within 3 years, the profit gets added to your income and you have to pay tax accordingly. If you sell physical gold after holding it for 3 years, you need to pay 20% long-term capital gains tax on the profit after taking indexation into account. To avoid-paying long-term capital tax, you can invest the profit in capital gains bonds or in residential property.

Investments in GETFs are free of wealth tax. However the profit you make by selling GETFs, is taxable. If you sell the units into three years of acquired status, it will be treated as STCG, the profit will be added to your income. If you sell your funds after three years, it will be treated as LTCG and 20 % of indexation is auctioned.

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