Exchange Traded Funds

ETFs or exchange traded funds are similar to index mutual funds. However, they trade just like stocks. ETFs were started in 2001 in India. They comprise a portfolio of equity, bonds and trade close to its net asset value. These funds mainly track an index, a commodity, or a pool of assets.

They have the following advantages over mutual funds and equity/debt funds:
1. Lower Costs: An investor who buys an ETF doesn’t have to pay an advisory/management fee to the fund manager and taxes are relatively lower in ETFs.
2. Lower Holding Costs: As commodity ETFs are widely traded in, there isn’t any physical delivery of commodity. The investor is just provided with an ETF certificate, similar to a stock certificate.

Gold ETF:

When it comes to making gold purchases, especially for investment purposes, gold coin and bar tend to be the preferred options.

However, all things taken into consideration, the ideal gold investment vehicle turns out to be gold ETFs. A gold ETF aims to track the price of domestic physical gold and invests in 99.5% purity gold bullion.

When you invest in a gold ETF, you purchase gold in an electronic form. One gold ETF unit is equal to 1 gm of gold and is backed by physical gold of very high purity. One can buy and sell gold ETFs just the way you trade in stocks.

Just like a stock of any company, gold ETFs are listed and traded on stock exchanges and can be bought and sold continuously at market prices.

Hence, gold ETF combines the flexibility of stock investment and the simplicity of gold investments.

Since ETFs are held in demat form, one needn’t worry about the safety aspect. Also, the cost of acquisition in gold ETF is very low, given the absence of making charges and other related expenses.

As a result, ETFs have much lower expenses compared with physical gold investment.

One can even consider doing an SIP for as low as Rs 1,000 a month to collect gold units over time to meet future requirement.