Gold has been under the spotlight for some time as the government has decided to set up an exchange for spot gold and rationalise the import duty from 12.5% to 7.5% to give a boost to the bullion industry. A gold spot exchange will enable extensive availability of spot prices, leading to transparency and a benchmark price. This is a positive for gold-linked investment products like ETFs (Exchange-Traded Fund).
For the uninitiated, Gold ETFs are passive investment instruments based on gold prices. Compared to physical gold investments, they are less expensive. An investor here has the flexibility to purchase as low as one unit of gold which comes to approximately Rs. 42. Furthermore, this purchase will be in electronic form, saving an investor from the hassle of storage and security and the worry of gold purity.
Gold ETF is unique in the sense it combines the flexibility of a stock investment while aiding an investor to take exposure to the yellow metal. One can buy and sell gold ETFs similar to the way one trades in the stock market. They are listed and traded on stock exchanges and can be bought and sold regularly at market prices. Unlike jewellery, coins and bars, units can be liquidated according to investors’ requirements. It can be bought and sold at Real-Time NAV (Net Asset value) on exchanges and is also accepted as collateral for loans.
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This form of investing in the yellow metal is also tax efficient in nature as the income earned from gold ETFs held for over three years is eligible to be treated as long-term capital gain tax with cost indexation benefit. Apart from all these, one cannot ignore the role gold plays in a portfolio as a hedge against inflation and stock market volatility as could be seen in recent times. At a time when stock markets across the globe corrected during the onset of the pandemic, gold held the fort.
Those investors looking to invest in gold as a part of the portfolio requirement or as a means to address any future gold requirement such as a marriage, can consider initiating a SIP into a gold ETF. This will ensure that you grow your exposure to the yellow metal in a systematic way capturing the various price points over the years. In terms of portfolio requirements, the extent of exposure can be best decided with the aid of a financial advisor who is best placed to guide you.
All of these benefits seem to not have gone unnoticed by the investors. Interestingly, the Gold ETF has been gaining traction among investors over the past year. The AUM (Assets under Management) of gold ETFs last year recorded a 120% jump when compared to the previous year. As of January 2021, the Gold ETF AUM stands at Rs. 14,481 cr. Currently, gold has come off its August 2020 highs when it had hit a record high of Rs. 56,200/10 grams.
To conclude, if you are an investor looking to build a well-rounded portfolio or simply seeking to accumulate gold units, it is very likely that Gold ETFs emerge as a convenient and cost-efficient option to take exposure to the yellow metal.
(Chintan Haria is the Head- Product Development & Strategy, ICICI Prudential AMC. Views expressed above are his own.)
