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What is Gold ETF

1. Introduction:

Aneesh planned to make his first spending in a small yet safe investment option. His Parents advised gold investment, considering it an auspicious and secure thing for the beginning of something good. But Aneesh was worried about the amount needed to buy gold. Also, the maintenance or the risk of mishandling or theft was a problematic factor. Gold is indeed pious but is there a safer way to invest in it even with a small amount of money? Yes, Gold ETFs. What is a Gold ETF, and how does it work? Let's understand.

2. What is Gold ETF?

An exchange-traded fund (ETF) that tracks the domestic physical gold price is a Gold ETF. They are gold-based passive investment instruments that invest in gold bullion and are based on gold prices. In a nutshell, Gold ETFs are paper or dematerialized units that represent physical gold. One gramme of gold equals one Gold ETF unit backed by physical gold of extremely high purity. Thus, gold exchange-traded funds (ETFs) combine the flexibility of stock investing with the simplicity of gold investing. Like any other stock, Gold ETFs are listed and traded on the NSE (National Stock Exchange of India) and the BSE (Bombay Stock Exchange Ltd.).

3. How does Gold ETF work?

A gramme of gold is represented by each unit of a Gold ETF, which is 99.5% pure. This physical gold is kept in custodian banks' vaults and is underlying for the units' value. Consider the following scenario: if the fund manager decides to assign each unit the value of one gramme of gold, the price of each unit will be roughly the same as the price of one gramme of gold. Consumers can trade Gold ETFs through a variety of investment funds.

Additional read: ICICI Direct- Gold ETF vs Gold futures

4. Pros of investing in Gold ETF:

         I. Gold ETF is traded at the same rate pan India, which is not the case with physical gold. In different geographical locations, the physical gold market operates at different prices. In addition, the buying and selling rates are different to cover the liquidation and other costs associated with physical gold trading.

       II. The purity of Gold ETFs is guaranteed because the sector is organized, and 99.5% purity is the standard. In contrast, the physical gold market lacks the transparency needed to build trust in purity.

     III. In the case of Gold ETF, you can buy and sell gold with ease due to it being listed on stock exchanges.

    IV. Because you're dealing with a Dematerialized form of gold, there's no need to worry about storage when you invest in Gold ETFs. If you buy gold coins, bars, or jewellery, storage and security are significant concerns.

      V. Gold ETF is stored in electronic and Demat form. That relieves the investor of the worries that come with the storage of physical gold, like theft. It also saves your money on locker fees that are to be paid to keep physical gold safe.

    VI. Since Gold ETFs are traded on a stock exchange, there are no entry or exit loads.

   VII. Physical gold is subject to indirect taxes, such as the 3% GST on the purchase and sale price. ETF transactions save this cost because ETFs are securities, and securities are specifically exempt from GST.

5.      How can I invest in Gold ETF?

Several banks and private financial institutions offer Gold ETF products. Once you've decided on a product, your ETF fund manager will act as your stockbroker on the NSE, buying and selling gold on your behalf. This procedure is similar to stock and stock market trading. To invest in Gold ETF-

         I. Open a Demat account; most platforms allow you to open a Demat and trading account online

       II. Some essential documentation, such as a PAN card and proof of address and identity, will be required as a part of the KYC procedure

     III. After you've created an account, you can choose to purchase units of a Gold ETF.

    IV. Your Demat account will be credited with the gold ETF units

      V. You will get the cash equivalent of the value of gold on the day of selling if you redeem your ETF

Experts believe that adding a component of Gold ETF to your investment portfolio will protect your portfolio from downside risks. Depending on your risk appetite and available cash in hand, you could put 5 to 10% of your money into gold. The crucial thing is to have a well-diversified portfolio, and investing in gold can be an excellent way to do so.


ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism.  The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein mentioned are solely for informational and educational purpose.

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