How to Invest in Gold Exchange Traded Funds?

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Gold is one of the most sought-after precious metals in the world. In fact, Indians are known to invest heavily in it due to its ability to beat inflation. Of late, gold exchange-traded funds have quickly become one of the most preferred ways to invest in the precious metal. 

Gold Exchange Traded Funds enable you to capitalise on the wealth-creation potential of the metal while eliminating the hassle of having to store physical gold. Want to know how to invest in gold ETFs? Continue reading to find out. 

What are Gold Exchange Traded Funds? 

Now, before we look at how to invest in gold ETF funds in India, you need to first know what they are. Here’s a brief overview. 

An Exchange Traded Fund or ETF is a type of mutual fund that pools money from multiple investors and invests the same in different assets. However, unlike a traditional mutual fund, an ETF is listed on stock exchanges and can be freely traded just like a stock. 

A gold ETF, meanwhile, is an exchange-traded fund that invests the pooled money exclusively in gold bullion. The primary objective of a gold ETF is to track the price of physical gold while simultaneously restricting the tracking error as much as possible. 

Additional Read: Sovereign Gold Bond

How to Invest in a Gold ETF in India? 

Investing in a gold ETF is quite straightforward. All you need to do is follow the steps outlined below. 

  • Step 1: Open a trading and demat account with a stockbroker. A demat account is mandatory since the units of a gold ETF are held in a dematerialised format. 
  • Step 2: Once the accounts are opened, use your user credentials to log into your trading account.
  • Step 3: Transfer the funds you wish to invest to your trading account. 
  • Step 4: Look for gold ETFs using the search option of the trading account
  • Step 5: Choose the ETF that you wish to invest in after careful consideration. 
  • Step 6: Use the order placement function of your trading account to place a buy order for the desired number of units of the gold ETF you wish to purchase. 
  • Step 7: You will receive a notification once the buy order is executed by the exchange. 

Once the order is executed, the gold ETF units you purchased will be credited to your demat account within T+2 days. 

Things You Should Know Before Investing in Gold Exchange Traded Funds

Now that you’ve seen how to invest in gold ETFs online, let’s look at a few key factors you need to be aware of before investing. 

  • Fund of Funds (FoF) 

Some Asset Management Companies (AMCs) offer Fund of Funds (FoF), which is a unique way to invest in gold ETFs. Unlike a traditional ETF, gold Fund of Funds pool investors’ money and invest in other gold ETFs instead of gold bullion. 

  • Mode of Investment  

With gold ETFs, you get the freedom to choose the mode of investment. For instance, you can invest a lump sum amount into the fund or opt for a Systematic Investment Plan (SIP). Investing in a gold ETF via the SIP mode is ideal for small investors and may even provide higher returns thanks to the power of compounding and rupee cost averaging. 

  • ETF Charges 

When you invest in a gold ETF, you’re liable to pay certain charges like the expense ratio. The higher the expense ratio, the lower your returns from the gold ETF are likely to be. Therefore, before you invest in one, make sure to thoroughly check the expense ratio. 

  • Tracking Errors and Trading Volume

Gold ETFs are subject to tracking errors, which is basically the difference between the return offered by physical gold and the return of the ETF. The lower the tracking error is, the better. The trading volume is another factor you need to consider when investing in a gold ETF. The higher the trading volume, the easier it is to buy and sell units.

  • Taxation

The returns from a gold ETF are subject to either short-term or long-term capital gains tax depending on the holding tenure. If you hold the ETF for less than 36 months, the capital gains from your investment are considered to be short-term. In this case, the returns are added to your income and are taxed at the slab rate applicable to you. 

However, if you hold the ETF for more than 36 months, the capital gains from your investment are categorised as long-term. In this case, the returns are taxed at a flat rate of 20% with indexation benefits. 

Also Read: What is Value Investing?


With this, you must now be aware of how to invest in gold ETFs. Compared to physical gold, gold ETFs offer a plethora of benefits ranging from safety and price transparency to a highly simplified and convenient purchase process. That’s not all. Adding gold ETFs to your investment portfolio helps diversify risk and may even protect your portfolio from losing value significantly during adverse market movements. 

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