Unlike physical gold, ETFs can be purchased as stocks on a stock exchange. ETFs allow investors to access gold and, at the same time, avoid the costs and inconveniences associated with profit margins, storage costs and the security risks of holding physical gold. While gold ETFs can be a good investment, they carry a great deal of counterparty risk inherent to their chain of custody. And this risk will only increase proportionally with systemic uncertainties.
Gold ETFs are backed by gold with a purity of 99.5%, so investors can be sure of the quality of gold. Investors keep gold ETFs in a Demat account and don't have to worry about their safety, as is the case with physical gold. The prices of physical gold are usually not uniform, while gold ETFs follow international prices. Dhanteras, which marks the first day of Diwali in India, is considered conducive to buying gold and silver.
Buying gold on auspicious occasions is part of Indian tradition. Investing in gold can be made in the form of physical gold, sovereign gold bonds, gold ETFs and gold funds. Gold ETFs are basically exchange-traded funds that invest in gold. As mentioned earlier, you won't actually gain ownership of physical gold with this type of ETF.
Gold ETFs offer traders the ability to invest in gold without having to manage physical gold. Gold ETFs are usually trusts and a share of an ETF is a paper asset that represents a certain amount of gold held by the trust. Each stock can be bought and sold like a stock. Chintan Haria, director of product development strategy %26 at ICICI Prudential AMC, said that investors considering buying gold for investment purposes this Diwali can consider gold ETFs.
Unlike an investment in something like a steel company, the gold you invest in doesn't generate any income. Fortunately for investors, there are now online platforms that make buying gold as easy and convenient as trading GLD ETFs. The value of gold in the vaults is likely to be much higher than what this limited policy would cover. Instead, the government classifies this type of investment as an object of collection, which is subject to the same tax rules as the possession of physical gold.
Therefore, you'll experience a higher level of tax liability for no reason when choosing a gold ETF instead of the metal itself. Physical gold has held value for thousands of years, and many who invest in it find this continuity attractive. In addition to cultural and traditional reasons, gold also plays an important role in the portfolio. The other advantage is that you can use leverage with options, which can be risky, but it's something you can't do with gold bars.
This is why serious investors looking to establish protections for their portfolios prefer gold bars. If we look at both assets more closely, it's clear that gold ETFs and gold bars are very different investments. If you are an investor who is not planning to accept delivery and are comfortable with a higher degree of risk, GLD may be a good way to expose yourself to the price of gold. Much to the dismay of investors, this applies every time you sell your gold ETF, since the government considers it a taxable event.
You should physically buy gold only when you purchase it for immediate consumption and personal use. With ease, convenience and automation, there's no excuse for not making an allocation to physical gold.