A golden investment opportunity – Gold ETF mutual fund

Have you ever heard of a scheme that can prove to be more lucrative than physical gold? Sounds little off beat, but is true. Gold has always charmed the investors towards itself. Gold is believed to be one of the most tested and secure investment avenues. Earlier, the surplus money was either parked in fixed deposits or gold was bought and kept as a part of fixed assets which would become a survivor in an exigency.

Now the axis has shifted from saving to investment. Clients put their money in various other schemes and give priority to investing rather than merely saving. But, still the craving for gold as a method of investment has not died out. Considering the investing sentiments of clients and their want to invest in gold financial experts have introduced a new type of mutual fund scheme known as the Gold ETF. The term ETF can be elaborated as Exchange Traded Fund. This means that a Gold ETF fund does not trade in physical gold but it exchanges the gold in the form of units on the stock exchange (NSE or BSE).

Origin of the concept of Gold ETF mutual fund
The scheme originated from Canada in the year 1961. Back then it was a close-ended fund. But, now the it has experienced a revamp as the it has transformed from a close-ended fund to an open-ended one. It invests in gold bullion and its latent assets. Gold bullion is the companies which produce gold. By investing in the Gold ETF, a client gets to own the gold equivalent to the investment amount. It is also called as paper gold because the clients do not physically own gold in the form of bars or coins.

Gold ETF funds in India
The first Gold ETF fund of India was launched in the year 2007 by Benchmark Mutual Fund, presently known as Goldman Sachs. Since then 13 mutual fund companies have come up with Gold ETF scheme. This scheme is capable of attracting clients as there is no physical dealing in gold making it less riskier. Along with the benefit of security the customer has an additional feature which is absent in any other mutual fund plan, i.e., flexibility of purchasing. In Gold ETF fund the client is free to purchase the units according to his purchasing power. For example, initially Rakesh has finances to buy only 2 units of the Gold ETF fund then he is allowed to do so. After a few months if Rakesh is able to arrange money and buy some more units then he is free to add up the units as and when he wants. The units of gold can be easily converted into physical gold if the units of gold owned by the client is equivalent to one kilogram.

How does Gold ETF overshadow the physical gold?
Talking about physical gold the client gets it in the form of bars and coins which is purchased from a jeweller. The clients have to trust the dealer and depend upon him for the purity of the gold. But, there is greater risk of treachery in the dealings as the jewellers do not supply pure gold and we come to know about the fraud only when we resell it. In addition, to impurity the client has to pay a commission to the jeweller who is not regulated by any governing body and so it is their free will to charge whatever they want which is actually a very high amount.
Unlike physical gold, the Gold ETF fund is a hassle-free way of investing as it does not include trading in physical quantity. The unit holdings are shown on paper thus it does not involve any storage costs. The Gold ETF fund in India is regulated by SEBI (Security Exchange Board of India), and so no AMC can alter the fees that are involved in facilitating the investment. The purity of the gold is 99.5% and is tested by the valuers appointed by London Bullion Market Association on behalf of the clients. Hence, the clients have a better option to invest in gold which is through Gold ETF fund.

Gold ETF funds also provide a taxation benefit on investments which exceed the limit of one year. The investments are termed as long-term investments and the capital gains achieved by selling the units of the scheme are tax-free after the completion of one year since the date of allotment. But, when the client deals in physical gold he/she has to pay wealth tax for it.

So, to enjoy a stress-free investing experience without the tautness of storing the physical gold one can easily invest through SIP in Gold ETF mutual fund.