Gold ETF vs Physical Gold
Gold has been preferably the most common way of
investments for all the Indians because of its authentic performance in India.
The Indians have the mentality to invest in gold commodities so that they can
save the commodity for their child’s marriages. And these facts make India the
second-largest importer of the yellow gold metal in the world.
These days the investment in the gold can be done in the
two different forms. The two different forms of investment in gold are
●
Investment in the physical form of
the gold
●
Investment through gold ETFs
What Is An
ETF?
Got married and started a family with their children, well
they would be ETFs. ETFs stand for exchange-traded funds. ETFs have inherited
traits from each parent just like index funds. Most ETFs are passively managed
diversified and low-cost and just like stocks. ETFs are bought through a
brokerage account and trade on an exchange at any time during the day. This
mashup of desirable traits has made ETFs increasingly popular investment tools.
There are over 6,000 ETFs on 60 exchanges around the world with about 3
trillion dollars in assets.
How Does ETFs
Work?
Here's how they work. Imagine ETFs are baskets and this is
the important part. Each basket holds actual securities. So for example, a
bonds basket could be packed with a collection of government or corporate bonds
and the solar stocks basket holds real shares and companies that make solar
panels. There's even a gold basket backed by you guessed it gold bars sitting
in a vault.
Now let's say you had $1000 and you wanted to buy gold.
The problem is $1000 isn't going to buy a whole lot of gold only about an
ounce. it's really difficult not to mention risky to store your gold what would
be a lot easier and safer is to invest your thousand dollars in a gold ETF.
when you do that you're not buying the gold itself
you're buying shares of a big basket of gold shares. The trade just like stocks
and those are the two big attractions of ETFs. you don't need to be wealthy to
invest in them and they are simple to buy sell and own another draw. ETFs
rarely incur yearly capital gains taxes as mutual funds can.
you'll only pay taxes when you sell your shares in
the ETF for a profit it's no wonder that ETFs have exploded in the US alone
ETFs trade about 20 trillion dollars worth of shares a year. which is more than
the US GDP. it seems clear that ETFs are going to be part of the investing
universe for many years to come.
In simple words, ETFs (Exchange Traded Fund) are funds
that track down the indexes such as CNx nifty or BSE Sensex, etc.
An ETF is an exchange-traded fund which unlike the other
regular mutual funds trades like a common stock on a stock exchange. The
essential units of the ETF are usually bought and sold by the broker or any
agent or any recognized stock exchange person. The units of the ETF are
mentioned in the stock exchange and NAV varies as the market fluctuates in
different domains.
As the units of the ETFs are listed the stock exchange
only they are not bought or sold as any open and mutual, or equity fund. An
investor can simply buy as many units as he/she desires without any
restrictions through the exchange.
Whenever you buy the units of ETFs, it means that you are
buying shares. These shares of a portfolio are going to track the yield and
return of its native index.
What Is Gold
ETF?
Gold ETF, or Exchange Traded Fund, is aware based Mutual
Fund that invests into assets like gold. These trade exchanged assets perform
like individual stocks and are exchanged likewise on the stock trade.
ETFs are used to represent the assets and for this case,
physical gold both in dematerialized and paper form.
An investor investing stock rather than the actual metal
and once they are traded they immediately get credited with the unit’s
equivalent cash amount instead of the physical gold metal.
Why Gold ETF?
According to the experts, the ETFs are great ways to
invest in gold. And one of the best options for people who don’t want any gold
storage hassle or doubts regarding the purity of the gold. Experts also sat
that with ETFs investment people are more likely to great a greater advantage
in tax benefits too.
Advantages Of Investing In Gold ETFs And why We Should Opt
For Gold ETF
Mentioned below are some of the exclusive benefits that
you can get once you start investing in gold ETFs rather than the physical
gold.
●
The purity of the gold is
guaranteed. There are no doubts regarding the purity as the units are backed by
physical gold of high purity
●
Listed and traded on the stock
exchange
●
Transparent and real-time prices
which give a clear picture of the fluctuations of the gold process in the
market
●
ETFs are accepted by banks as
collaterals which makes the loan processing easier
●
No entry and exit reload
●
One of the best advantages of
investing in gold ETFs is that there is no fear of theft. All the physical
units are safe and secured as they are stored in Demat
●
The ETFs assets are treated as the
long term capital source
●
No Vat, no sales tax no wealth
tax, and also you are also not charged for security tax too
Pros And Cons
Of Physical Jewelry And Gold ETFs
Pros
●
Once you invest in gold ETFs you
do not have to give any other surplus charges like making charges. This
eventually helps out in saving more money with greater profit and a great
investment
●
There are times when the buyers or
banks refuse to buy the gold bars, chains, or any physical form of jewelry. But
when it comes to gold ETFs you can sell it off to any broker any time you want
●
You are tension relieved. As the
tension and the thought of keeping your physical jewelry safe, doesn’t exist.
As there is no theft of stealing at all
●
According to the trend, whenever
the dollar goes weak the rates of gold tend to raise much higher. This can
indirectly profit you and vice versa
●
When you plan to buy a physical
form of gold, you also need a bank locker to keep the things safe which also
ends in paying surplus charges. While in ETFs there are no such needs of bank
lockers
●
Whenever you resale your physical
form of jewelry some amount Is deducted by the jeweler or the bank but in the
case of ETFs this does not happen
●
Gold ETFs have been proving as a
great form of investments for short term and medium-term investors as the gold
ETFs provide a lot of liquidity
●
Gold ETFs are more tax-efficient
than the physical form of the gold
●
You need to pay wealth tax when
you owe a greater amount of physical gold while in the case of ETFs there is no
such tax
CONS
●
If you simply have the picture of
you wearing the beautiful piece of gold that you saw then nothing can help you
in investing for gold ETFs
●
When you try to redeem your gold
ETFs they always come in form of cash and not in the physical gold as they are
gold contracts and derivatives
●
Make sure to agree with the market
risks once you plan to invest in gold ETFs. As the market keeps fluctuating
●
While you owe gold ETF you cannot
ignore the Demat account charges and the annual maintenance that you have to
pay related t that
●
Make sure to check the performance
of ETF once you invest in it
●
There are also cases where capital
gain tax breaks are applicable to tradition exchange-traded fund but at the
same time they do not apply for ETFs
To have a brief study and proper analysis of the comparison below is the returns table of the SBI gold ETFs ( CLICK HERE TO KNOW ABOUT SBI GOLD ETF ) vs Physical Gold
The SBI ETFs also provide you with different categories of ETFs. These different ETFs have different criteria and requirements and benefits too. You can simply pick according to your choice and requirement and proceed ahead in making the ETF investment.
PIVOT LEVELS
Period
Invested for |
₹10000 Invested on |
Latest Value |
Absolute Returns |
Annualised Returns |
Category Avg |
Rank within Category |
1 Week |
18-Sep-20 |
9671.10 |
-3.29% |
- |
-3.90% |
22/124 |
1 Month |
25-Aug-20 |
9658.70 |
-3.41% |
- |
-4.09% |
25/123 |
3 Month |
25-Jun-20 |
10413.90 |
4.14% |
- |
5.40% |
72/119 |
6 Month |
25-Mar-20 |
11222.00 |
12.22% |
- |
29.98% |
104/116 |
YTD |
01-Jan-20 |
12697.30 |
26.97% |
- |
-5.09% |
6/114 |
1 Year |
25-Sep-19 |
12665.00 |
26.65% |
26.57% |
-0.61% |
6/110 |
2 Year |
25-Sep-18 |
15972.90 |
59.73% |
26.34% |
3.27% |
3/89 |
3 Year |
25-Sep-17 |
16378.00 |
63.78% |
17.86% |
5.56% |
10/83 |
5 Year |
24-Sep-15 |
17839.00 |
78.39% |
12.25% |
8.16% |
11/65 |
10 Year |
24-Sep-10 |
23464.50 |
134.65% |
8.89% |
7.48% |
9/43 |
Since Inception |
18-May-09 |
30820.60 |
208.21% |
10.41% |
5.92% |
32/115 |
SIP RETURNS (NAV as on 25th September, 2020)
Period
Invested for |
₹1000 SIP Started on |
Investments |
Latest Value |
Absolute Returns |
Annualised Returns |
1 Year |
25-Sep-19 |
12000 |
13757.86 |
14.65 % |
28.06 % |
2 Year |
25-Sep-18 |
24000 |
31914.54 |
32.98 % |
29.97 % |
3 Year |
25-Sep-17 |
36000 |
51426.27 |
42.85 % |
24.53 % |
5 Year |
24-Sep-15 |
60000 |
91345.26 |
52.24 % |
16.81 % |
10 Year |
24-Sep-10 |
120000 |
196728.87 |
63.94 % |
9.54 % |
GOLD ETFs VS PHYSICAL GOLD- WHAT TO CHOSE
Between a
gold ETF versus a gold fund what would you choose and why. Right, so we Indians
love gold and the numbers today are like,
Indian gold market is approximately seventy-five lakh crores is the gold
market, real estate is 80 lakh crores, the mutual fund is 25 lakh crores, and
fixed deposit is 40 lakh crores.
So you can see Google is one of the biggest
asset classes and we Indians love physical assets we love gold. But gold is not
an asset for wealth creation. In turn, if you look at any asset which can help
you create wealth need to have a capital appreciation.
Gold doesn't have a capital. it only works
because of greed and fear. If you see the underlying asset which is generally
of no interest or dividend and it just comes out of a show yeah. The under
mentally fundamental history shows that there is capital appreciation a
precision but if you look at the last 30- 40year returns the returns have been
between 8 to 9% CagA return.
So they are inflation-linked returns. so it's
not a wealth creation asset. This is one myth one needs to break in that gold
cannot give you a large double the inflation kind of returns but you end up taking a lot of risk in gold
also because the price is volatile.
Gold should be a part of your portfolio for your
social requirement not for wealth creation. Objecting should not be more than
10-15 percent of your overall debt first which is one cardinal rule which we
should follow.
Talking about the second thing the ways how can
we invest in gold. So there are gold ETFs available and there is a recent
couple of years before the sovereign gold bond ( CLICK HERE TO KNOW EVERYTHING ABOUT SOVEREIGN GOLD BOND ) that has come into the market.
compare both these products with five different parameters talking about the
first parameter is in terms of transaction charges. so the sovereign gold fund
is the cheapest available there is no expense in that product
whereas ETF will always have an expense.
Liquidity point of view sovereign world fund is an eight-year product and after
50 only liquidity comes in. so there is no liquidity in that in terms of ETF.
you always have liquidity available in terms of interest and that is one very
interesting feature. two and a half percent interest what this sovereign
Goldman generates compared to an ETF in terms of taxability.
Again there is a catch there that sovereign gold
fund if you hold it till a majority for eight years it's a complete tax-free
product for you in case of ETF you end up paying the debt taxation more than
the three-year indexation benefit. one very superior feature about gold ETF is
the regular investment and that's where anyone can do a monthly investment
planning and all those in a gold ETF compared to the sovereign gold fund which
there is no timeline available for that.
Now, with the end of guide you get clear picture
abut what are gold etfs and why you should invest in them.
1 Comments
Great article to go through and understand the difference and plan investments accordingly
ReplyDelete