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Gold ETFs to capture the Yellow Metal’s shine

Gold ETFs to capture the Yellow Metal’s shine

Gold ETFs to capture the Yellow Metal’s shine

Gold ETFs to capture the Yellow Metal’s shine

Invest in gold. This is advice you would receive multiple times from your parents and grandparents. A long-term investment whose value increases with time, gold is also considered an inflation hedge. But since buying physical gold can be expensive and cumbersome, there are investor-friendly options to get exposure to the yellow metal.

Gold Exchange-Traded Funds (ETFs) are one such option. This is a fund that tracks the price of physical gold in the domestic market. Gold ETFs are passive instruments that move in tandem with gold prices.

One gold ETF unit is equal to one gram of gold and is backed by physical gold of 99.5% purity. These ETFs are open-ended mutual fund schemes traded on the exchanges. This commodity-based mutual fund investment could be used for consistent wealth creation over a prolonged period.

For all our mutual fund needs, Standard Chartered SC Invest could be a convenient option to invest.

How do gold ETFs work?

Gold ETFs are flexible investments that help take the advantage of a rise in gold prices. This means that the value of your gold ETFs will rise whenever gold prices increase.

While physical gold is priced differently across the country, gold ETF has the same rate throughout India. It can be bought and sold like other exchange instruments. Gold ETFs incur a brokerage fee and fund management charges during buying and selling.

You could be certain about the quality of gold reserves backing the gold ETFs because regular audits are conducted by the mutual fund houses. Whenever you buy a gold ETF, the fund house buys a similar quantity of physical gold to back it. For instance, if you have purchased 1,000 units, the equivalent gold is 1,000 grams.

Fund houses selling gold ETFs have to follow SEBI mutual fund regulations. There is no minimum lock-in period for the investments.

What are the benefits of gold ETFs?

Gold ETFs are a safe-haven investment amidst market volatility. The minimum funds to be set aside are also significantly lower than physical gold purchases. Here are the key advantages of investing in gold ETFs: 

  1. Guaranteed purity: Since gold ETFs are SEBI regulated, every single unit is backed by physical gold of the highest purity.
  2. Transparent: Gold ETF pricing can be checked in real-time. Since these units are listed on the exchange, it is easier to keep a track of the investment.
  3. Secure: Compared to physical gold which needs to be stored in a secure environment, gold ETFs are Demat versions of the commodity.
  4. Collateral: Gold ETFs can be offered as collateral for securing loans from financial institutions. There are no penalties for early withdrawal to pay for home purchases.
  5. Long-term returns: The longer you hold gold ETFs, the better the potential of returns. However, since it is a market investment, gold ETFs attract capital gains tax.
  6. Inflation hedge: When prices of commodities go up, the value of your investment will also zoom. This could manage high prices.
  7. Gold exchange: A few fund houses offer the facility of exchanging gold ETFs for physical gold. But there could be a minimum unit size of 1,000 and above.

If you sell Gold ETFs after the completion of three years, a long-term capital gains (LTCG) tax of 20% is applicable. However, there is an indexation benefit, so the gains are recalculated based on the prevailing inflation rate during the financial year.

Let us look at an example.

Investment Amount Rs 2 lakh
Investment Date January 2020
Redemption Date March 2024
Redemption Value Rs 2.5 lakh
Cost Inflation Index in January 2020 301
Cost Inflation Index in March 2024 348
Indexed investment amount Rs 2 lakh * (301/348) = Rs 2.31 lakh
Taxable capital gains Rs 2.5 lakh-Rs 2.31 lakh = Rs 19,000

In the above illustration, the cost inflation index has helped reduce the gains from Rs 50,000 to Rs 19,000. So taking the 20% LTCG, an amount of Rs 3,800 will be deducted as tax during redemption.

Since the markets are dynamic, taking investment decisions could become complicated. The Standard Chartered wealth podcast could help make informed decisions.

Who is it ideal for?

Gold ETFs could be an ideal investment if you do not wish to dabble in physical gold. It can be purchased with a single click and later sold instantly without lengthy documentation. Since this investment does not require substantial capital to get started, gold ETFs could be an apt scheme, no matter what income group or age bracket you belong to.

However, while short-listing a gold ETF, it could be helpful to monitor the net asset value of the scheme. The track record of the fund management company could also give an insight into the future performance of your investment. Physical gold may not be feasible for everyone, but gold ETFs aim to make the priced metal accessible.


This article is for information and educational purposes only. It is meant only for use as a reference tool. It has not been prepared for any particular person or class of persons. The products and services mentioned here may not be suitable for everyone and should not be used as a basis for making investment decisions. This article does not constitute investment advice nor is it an offer, solicitation or invitation to transact in any investment or insurance product. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment. Prior to transacting, you should obtain independent financial advice. In the event that you choose not to seek independent professional advice, you should consider whether the product is suitable for you. You should refer to the relevant offering documents for detailed information.

Standard Chartered Bank is a distributor of mutual funds and referrer of other third party investment products and does not provide any investment advisory services as defined under the SEBI (Investment Advisers) Regulations, 2013 or otherwise. Investments are subject to market risk. Read scheme related documents carefully prior to investing. Past performance is not indicative of future returns.

Standard Chartered Bank, India having its principal place of business at Crescenzo Building C-38/C-39 G Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400051 is a licensed Corporate Agent of ICICI Prudential Life Insurance Company Limited (IRDAI Reg No. 105) for life insurance products; Royal Sundaram General Insurance Co. Limited (IRDAI Reg No. 102) and ICICI Lombard General Insurance Company (IRDAI Reg No. 115) for general insurance products and Niva Bupa Health Insurance Company Limited (IRDAI Registration no. 145) for standalone health insurance products vide corporate agent number CA0028. All insurance products are underwritten by the respective insurance companies. Participation of Standard Chartered Bank clients in any insurance scheme is purely voluntary, and is not linked to the availment of any other banking products or services from the Bank. The benefits/ features of the products are indicative only. For more details on risk factors and terms and conditions, please read sales brochure carefully before concluding sale. Insurance is the subject matter of solicitation.