Learning Value Investing

Gold Exchange Traded Funds (ETFs) have become quite popular in the last couple of years with a number of asset management firms launching this ETFs.In fact Gold ETFs are the most popular asset ETFs in currently.The asset size of these ETFs has increased sharply with the increasing popularity of gold as an investment asset.Here is a listing of the Gold ETFs found in India  currently

1.      Purchases can be made in small denominations: An investor can purchase gold ETFs in small denominations. For example, one gold ETF unit represents one gram of gold. Therefore, an investor can even buy small amount of units at a time and then accumulate more units over time to shore up his investment.

2.      No worries about quality: When buying a gold bar or gold coin, a buyer has to make sure he buys it from a trustworthy source, lest he gets saddled with gold of lesser purity. There have been instances when one has paid for a 24K/10 gram gold coin and has got a 19-20K/10 gram coin. This cannot happen in the case of a Gold ETF as an investor does not need to take physical delivery of the gold.

3.      Convenient resale: Since Gold ETFs are traded on the exchange, an investor can buy or sell units easily anytime during market hours. Try comparing this with the headache of selling a gold bar, coin or jewelery. An investor always tends to lose some amount towards making charges in case of jewelery and banks do not buy back gold coins, even when purchased from them.

4.      Hassle-free storage: In case of Gold ETFs, there is no hassle of storage as it is in demat form. In case of gold bars, coins or jewelry, one may have to hire a bank locker, which again comes at a considerable cost.

5.      Taxation: Physical gold needs to be held for three years or more to be eligible for long-term capital gains. If physical gold is sold before the stipulated period of three years then short-term capital gains tax will be applicable. Comparatively, if Gold ETFs are held for less than a year, then the gains fall under short term capital gains. This means, that gains are clubbed with the overall income of the investor and depending on the tax slab he falls in, taxes will be applicable. Further, if the Gold ETF units are held for over 12 months; then the gains are classified as long term capital gains tax, where the investor will pay either 10% on the gain (profit) without indexation or 20% with indexation, whichever is lower.