Gold has always been a favourite investment in India, whether in the form of jewellery, coins, or bars. However, buying physical gold comes with challenges like storage, purity concerns, and high making charges. Gold ETFs (Exchange-Traded Funds) offer a modern, hassle-free way to invest in gold without these problems.
In this guide, we’ll explain:
✔ What Gold ETFs are
✔ How they work
✔ Benefits of investing in them
✔ Risks to consider
✔ How to invest in Gold ETFs
✔ Comparison with other gold investments
1. What is a Gold ETF?
A Gold ETF is a type of mutual fund that invests in physical gold. Each unit of a Gold ETF represents 1 gram of 99.5% pure gold, stored in secure vaults.
Key Features:
- Traded on Stock Exchanges – You can buy/sell Gold ETFs like shares through your demat account.
- Backed by Real Gold – The fund holds actual gold bars in bank vaults.
- No Physical Handling – No need to worry about storage or theft.
- Low Costs – No making charges (unlike jewellery) or locker fees.
2. How Do Gold ETFs Work?
- Fund House Buys Gold – The ETF provider purchases gold bars and keeps them in secure vaults.
- Units Created – Each ETF unit represents 1 gram of gold.
- Listed on Stock Exchange – You buy/sell these units at market prices.
- Price Movement – The ETF price moves with global gold prices (in ₹).
Example:
- If gold is ₹6,000/gram, 1 Gold ETF unit = ~₹6,000.
- If gold price rises to ₹6,500/gram, your ETF value increases.
3. Why Invest in Gold ETFs?
✅ 1. No Storage Worries
- Physical gold requires a locker (extra cost).
- Gold ETFs are digital—no risk of theft or loss.
✅ 2. High Liquidity
- Can be sold anytime during market hours (unlike gold bonds with lock-in).
✅ 3. Lower Costs Than Physical Gold
- Jewellery has making charges (10-15% extra).
- Coins/Bars have GST (3%).
- Gold ETFs only have a small expense ratio (~0.5%).
✅ 4. Transparency
- Prices track real-time gold rates (no manipulation).
✅ 5. Tax Benefits Over Physical Gold
- No wealth tax (physical gold above 50g may attract tax).
- Long-term capital gains (LTCG) tax after 3 years is 20% with indexation (reduces tax).
4. Risks of Gold ETFs
❌ 1. Market Risk
- Gold prices fluctuate based on global demand, dollar rates, and inflation.
❌ 2. Demat Account Needed
- Must have a trading & demat account to invest.
❌ 3. No Dividends or Interest
- Unlike stocks or bonds, Gold ETFs only give returns if gold prices rise.
5. Gold ETFs vs Other Gold Investments
| Feature | Gold ETFs | Physical Gold | Sovereign Gold Bonds (SGBs) | Digital Gold |
| Ownership | Digital (1 unit = 1g) | Physical (jewellery/coins) | Digital (govt-backed) | Digital (MMTC/others) |
| Liquidity | High (sell anytime) | Low (selling takes time) | Medium (8-year lock-in) | Medium (platform-dependent) |
| Storage Risk | None | High (theft/loss risk) | None | None |
| Extra Returns | No | No | 2.5% annual interest | No |
| Tax Benefits | LTCG 20% after 3yrs | No | Tax-free if held till maturity | LTCG 20% after 3yrs |
| Making Charges | No | Yes (jewellery) | No | No |
Best Choice?
- For Traders & Short-Term Investors → Gold ETFs (liquid, low cost).
- Long-Term Investors → SGBs (interest + tax-free maturity).
- Avoid Physical Gold (high costs, storage issues).
6. How to Invest in Gold ETFs?
Step 1: Open a Demat & Trading Account
- Needed to buy/sell ETFs (Zerodha, Groww, ICICI Direct, etc.).
Step 2: Choose a Gold ETF
- Top funds: Nippon India Gold ETF, SBI Gold ETF, HDFC Gold ETF.
Step 3: Buy via Stock Exchange
- Search for the ETF (e.g., “Nippon Gold ETF”) and place an order.
Step 4: Monitor & Sell When Needed
- Track gold prices and sell when you want to exit.
7. Who Should Invest in Gold ETFs?
✔ Investors who want gold exposure without physical storage.
✔ Traders looking for short-term gold price movements.
✔ Portfolio diversifiers (5-10% in gold reduces risk).
Who Should Avoid?
✖ Those expecting fixed returns (better in SGBs).
✖ Investors without a demat account.
8. Conclusion – Are Gold ETFs Worth It?
Yes! Gold ETFs are one of the easiest, cheapest, and safest ways to invest in gold. They solve all the problems of physical gold (storage, purity, making charges) while offering liquidity and tax benefits.
Final Recommendation:
- Short to Medium Term → Gold ETFs
- Long Term (5+ years) → Sovereign Gold Bonds (SGBs)
Sekhar Gour is the creator of Finance Hub Assam. A finance enthusiast with a knack for simplifying complex money matters, Sekhar offers practical insights tailored to Assam’s economic scene. When not writing, he enjoys exploring local culture and market trends.