Gold prices in India have been rising steadily for the past few years. If we look at the data after March 2020, gold prices (24 karat) have more than doubled to Rs 88,500 per 10 grams. This tremendous surge has now further increased the inclination of investors towards various other gold-linked investments, including gold exchange-traded funds (ETFs). Rather, many investors are preferring to invest in gold ETFs instead of buying gold traditionally. The reason for this is clear — investing in gold ETFs neither causes the hassle of keeping the metal physically, nor the worry of theft or other risks. This is the reason why gold ETFs have now become a popular way to provide stability in the portfolio and protection from inflation.
Buying gold ETFs means you are keeping with you the precious metal in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. One gold ETF unit is equal to 1 gram of the metal.
Unlike equity mutual funds, where investors often take decisions by comparing the past returns of the funds, the case of gold ETFs is slightly different. Since these funds directly track gold prices, their returns are almost the same. In such a situation, the most important thing for investors is the ‘expense ratio’ — that is, the cost of managing the fund. Choosing a gold ETF with a low expense ratio means lower costs and higher returns. There are several gold ETFs available in the Indian market, and if investors wisely choose the low-cost option, they can get better returns in the long run.
Also read: Top 10 gold ETFs in India
In this story, we will take a look at 5 cheapest gold ETFs available in India based on their expense ratio (low to high).
1. Zerodha Gold ETF
Expense Ratio: 0.32%
Launch Date: 26 February 2024
2. Mirae Asset Gold ETF
Expense Ratio: 0.34%
Launch Date: 20 February 2023
3. LIC MF Gold ETF
Expense Ratio: 0.41%
Launch Date: 9 November 2011
4. Tata Gold ETF
Expense Ratio: 0.42%
Launch Date: 12 January 2024
5. Baroda BNP Paribas Gold ETF
Expense Ratio: 0.48%
Launch Date: 13 December 2023
(Data: Value Research)
Gold ETFs: Benefits, risks and important features that investors should know
Gold ETF benefits:
Safe investment: There is a risk of theft and adulteration in keeping physical gold, whereas Gold ETF is in demat form, which is completely safe.
Low cost and easy buying and selling: Making charges have to be paid on buying gold jewellery, but there is no such cost in Gold ETF. Also, it can be bought or sold on the stock exchange at any time.
Purity guaranteed: In this, investment is made in gold of 99.5% purity, so there is no concern about quality.
Start with low investment: A large amount is required to buy physical gold, but in Gold ETF you can start investing with a small amount.
Risks associated with gold ETFs:
Fluctuation in gold price: Gold ETF prices depend entirely on the international prices of gold, so there can be losses if the market falls.
Limited returns in the long term: Compared to the stock market or mutual funds, the return on gold is not that attractive in the long term, because it increases only with changes in prices, whereas in equity, the growth of companies is also beneficial.
Expense ratio: Gold ETFs also have some charge, which is called ‘Expense Ratio’. Although it is less than mutual funds, investors should still take it into their consideration while choosing a gold ETF.
Also read: Physical Gold Vs Gold ETFs: Which is better? 5, 10 and 15-year returns compared!
Gold ETF key features:
Tracks the price of gold: It works according to the spot price of gold and its performance depends entirely on the gold rates.
Trades on a stock exchange: Can be bought and sold just like shares, thus improving liquidity.
Invests in gold of at least 99.5% purity: This ensures that investors get a high-quality investment option.
ETF units are held in a demat account: Hence, handling it is hassle-free as compared to physical gold.
If you want to invest in gold but want to avoid the hassle of buying it physically, Gold ETFs can be an excellent option. But before investing, make sure you understand its expenses, potential risks and your investment objectives.
Summing Up
If you are thinking of investing in gold but don’t want the hassle of storing it at home or the fear of theft, then gold ETFs can be a great option. It gives you the benefit of rising gold prices, without the hassles associated with physical gold. Yes, market fluctuations also affect gold ETFs, so before investing, it is important to understand how it matches your financial goals. If you want to invest in gold for the long term, it would be wise to choose a low-cost gold ETF and include it in the portfolio with the right balance.