If you are one of those who couldn't invest in gold on a regular basis through Gold ETF route due to lack of SIP facility, there is a good news coming. Gold ETF may tie up with leading jewellers who would help convert your units into jewellery. Gold ETFs in India do not have a facility of systematic investment plan as of now because of which either you have to invest every month on your own or rely on your broker to do it for you.
What are Gold ETFs?
Gold Exchange Traded Fund is a financial product that is listed on a stock exchange and represents ownership of underlying gold assets. Each unit of Gold ETF that you get is equivalent to 1 gram of gold. You need to have a demat account to buy Gold ETF and if you wish to trade your gold units, you need to have a trading account with a broker.
Why Gold ETFs?
Gold ETFs buy gold at spot prices and hence it is cheaper than is generally available in the market as there is no intermediary involved.
You can be sure of the purity of the gold bought through the Gold ETF as it is well regulated and you get certified purity of 99.5 per cent.
Since it is held in paper form it doesn't carry security risks.
There is no wealth tax for investing in Gold ETFs
Why no SIP in Gold ETFs?
If you invest in Gold ETFs, the delivery of physical gold can be taken only when the accumulated amount of gold reaches one kilogram of gold. However, you can redeem your units in cash if the amount is lower than one kilogram. Mutual Funds offer the facility of SIPs which is convenient and makes you avoid hassle of keeping account of monthly investing and allows you to spread you risk over longer period of time. The Gold ETF on the other hand has a problem to deal with SIPs and that is of "tracking error". For Asset Management Companies it is difficult to keep track of gold purchased less than a certain weight, say 100 grams. This leads to error in tracking smaller denominations of gold and hence delivering gold in lieu of the accumulated units becomes difficult. So, while you can redeem your units as cash, you cannot redeem it in form of gold, if it is less than 1 kilogram.
Delivery through jeweller
According to Ajay Mitra, MD, World Gold Council, India and Middle East, the Gold ETFs would soon start offering Systematic Investment Plans and the physical delivery of gold in smaller denominations. Sources indicate that efforts are on by the companies offering Gold ETFs, to tie up with the leading jewellers in India to help redeem the gold units in smaller denominations. For example, suppose if you now want to sell say, 90 units of a Gold ETF (90 units=90 grams of gold) you cannot get physical gold and will have to take the cash equivalent of 90 grams of gold. However, it may be possible in the near future that you can take the delivery of the physical gold through the pre-designated jeweller of any denomination in the form of a jewellery or coins/bars; you may have to shell out the making charges for the jewellery though.
Experts believe that gold must form at least 15 to 20 per cent of your portfolio and Gold ETF is a good way to go about it. With possibility of option of SIP in Gold ETF in near future it would make it even better.