5 Things to Know Before Buying Gold ETF

Personal Finance

For the last two thousand years, investing in gold has been a common activity in India. The precious metal was traded for spices and dyes back then. India still claims to be the owner of 170000 tonnes of gold — 20–25% of the total amount of gold mined to date. Gold is a great hedge, so investing in it is highly advised. It maintains its stability and provides good returns at a lower rate than many other assets.

If you are thinking about investing in gold, why not in Gold Exchange Traded Funds (ETFs)? Gold ETFs provide all of the benefits of gold trading. It also removes some of the most important drawbacks related to physical gold. If you look at gold solely as an investment option, you should invest in gold-related instruments such as Gold ETFs.

What are Gold ETFs?

Gold Exchange Traded Funds, also known as gold ETFs, are some investments that follow the domestic price of gold. They make investments in gold bullion. They are dematerialized versions of actual gold. One gram of gold is equal to one unit in the gold ETF scheme. This unit is supported by 99.5% pure physical gold. 

Through this scheme, one can purchase gold and invest in the market. As a result, they can be bought and sold on the NSE and BSE like any other stock. Also, they are traded at market rates and are listed in the cash section of the exchanges.

Some Benefits of Gold ETFs Over Physical Gold

  • No premium fees

When buying solid gold, owners will always demand a fee for coins and bars. When looking for the best ETFs to buy, you only pay the true value of the gold. No extra charges are applied. 

  • No chance of theft

There is no chance of theft because the gold you purchase through ETFs is secured. It is kept by a guarantor. This makes sure that the gold has absolutely no chance of being taken.

  • Assurance against fraud

A dishonest gold dealer may defraud you regarding the value and amount of gold you are buying. When purchasing Gold ETFs, it is not possible. 

  • No wealth tax

If you own more gold than a certain amount, you must pay a wealth tax on it. This is untrue if you purchase Gold ETFs, which you can do in any amount without incurring any wealth tax.

  • No price discrepancy

If you’re buying gold bars in India, be ready to pay a wide range of prices in various cities. Even the prices change from one jeweler to the next. When buying Gold ETFs, this issue is not present because the prices are consistent across the board. 

  • No storage costs

Buying solid gold requires a secure location to store it. Due to the fragility of storing gold, there is usually a surcharge. Again, choosing Gold ETFs will solve this problem. 

  • Tax advantages

For tax purposes, gold ETFs are much more effective than physical gold.

  • Liquidity

Gold ETFs have good liquidity, making it easy to buy and sell them. This benefit actually qualifies it as a type of currency. 

  • No deduction

No deduction is made at the time of resale. Physical gold will have a small amount deducted when it is sold again to a jeweler or buyer. With gold ETFs, this does not take place.

  • Can be sold at any time

For a number of reasons, banks or jewelers every now and then won’t buy the gold you own. These issues do not apply to ETFs since they are purchased and sold online.

Some Things to Consider Before Investing in the Best Gold ETFs 

  • The fund house’s track record of past performance should be one of your first priorities when buying gold ETFs. A better performance suggests a higher chance of future success and overall efficiency.  
  • The level of trading on a gold ETF, or liquidity, is a crucial factor to take into account. When trading activity is active, liquidity is higher, which increases the chance of high returns. 
  • Another key aspect to take into account is the ETF’s tracking error. It is expected that ETFs will closely follow the underlying indices. Investors are typically advised to choose a gold ETF with the smallest tracking error possible. 
  • Before purchasing gold ETFs, investors must be aware of the applicable taxes. Due to the fact that gold ETFs are regarded as non-equity assets, you must pay capital gains on them for up to three years after redemption. After indexation benefits are taken into account, 20% of long-term capital gains are also taxed.  
  • Gold ETFs are non-equity assets. So, the Securities Transaction Tax does not apply to them. 
  • Gold ETFs are not long-term revenue-producing equity assets. Instead, they serve as hedges that will keep your portfolio safe when the economy is uncertain. This means that periods of economic uncertainty are also the best for Gold ETF performance. 

Must Know Facts About Gold ETFs 

  • The assets under the management of the fund are unaffected by purchases or sales of gold ETFs (AUM). In a transaction involving a gold ETF, there is only a change in ownership. The AUM does not change.  
  • Each unit of a gold exchange-traded fund (ETF) is supported by a physical unit of gold with an equivalent value. SEBI regulates these funds.  
  • Physical gold prices are the only factor influencing gold ETF prices, and the value of the ETFs fluctuates based on the price of gold in the market at any particular time. 
  • A Demat account can be used to buy and sell gold ETFs on the stock market, just like any other asset sold there. 


A great way to protect your investments is to purchase gold. With slow but certain returns, it is also a very great investment. A good way to invest in gold is through gold exchange-traded funds (ETFs). They have none of the drawbacks of physical gold ownership. Gold ETFs offer prices that are as close as possible to the spot price of the metal with no added fees or restrictions.

For more details, you can visit the Piramal Finance website and explore their products and services.