Everything You Need to Know about Gold ETFs
A Gold ETFs (Exchange-Trade-Funds) is a fund that literally gives returns like gold: safe,secure but without any hassle. As the name suggests it is a type of funds that trade with gold related asset classes which is why it is now popular with young professionals. These funds are just like stocks and can be bought and sold on the stock exchanges, it offers investors a convenient way to gain exposure to gold without the logistical challenges of storing physical bullion.
What are Gold ETFs?
Let’s understand the Gold ETFs in a simple way,
If I ask you what is the most secure investment asset in the world, some of you might say it’s “Land”, but most of them will say it’s “Gold”. And It is not just a common perception there are several data they show how “Gold” always turns out to be the most vital and promising investment assets.
But buying in today’s market is kind of hectic without lots of confusion specially on gold’s carters, hidden charges like making charges etc.
Now Gold ETFs come into the picture and eliminate all the inconvenience and combine the benefits of traditional gold investment with the convenience of stock market trading, providing an ideal solution for value investors with limited time but a keen interest in wealth creation.
Typically Each Unit of an ETF equals the value of 1 gram of gold as it is backed by the very highest and purest physical gold.
These funds are listed and traded on major stock exchanges, just like company shares. Investors own units of the ETF, not physical gold, but the value of their investment moves in near-perfect correlation with the live gold price.
How does the Gold ETF work?
Are you wondering what happens behind the scenes to ensure your gold ETFs remain valuable investments? Here are a few things you should know:
The basic fundamental structure of a Gold ETF involves a fund house (Asset Management Company) that buys and stores physical gold in high-security vaults. Upon purchasing this gold, the fund issues units to investors. The entire process is overseen by a custodian for the gold and a trustee for the fund, ensuring robust investor protection. Units are created and redeemed through Authorised Participants (APs), usually large financial institutions, which allow the ETF’s market price to be aligned with its NAV.
How to Buy, Sell Gold ETFs
To invest, you simply buy units of a Gold ETF through a registered broker, which are listed and traded like stocks on the NSE and BSE. Transactions settle on a T+1 basis, and you can trade in lots of just one unit. Upon execution, the units are seamlessly credited or debited directly from your demat account.
Different Types of Gold ETFs and Their Function
Gold ETFs combine the stability of gold with the liquidity of equity, offering investors a modern investment vehicle. While the primary model tracks physical gold, the Gold ETF universe has evolved to offer a range of strategies. The following section details the key types of Gold ETFs and their respective functions.
1. Physical Gold ETFs
Physical Gold ETFs are the most widespread Gold ETF in India. It allows investors to invest directly in gold bullion. Each unit represents 1 gram of physical gold, which is stored securely in Fund House vaults. Their value directly mirrors the domestic gold price.
How its Function: The fund house buys physical gold, and investors buy units of the fund, gaining precise exposure to gold’s price movements without handling the metal.
2. Gold ETF Fund of Funds (FoFs)
Instead of purchasing gold like traditional gold ETFs, these types of ETFs invest directly in units of physical gold ETFs. This reduces the hindrance of having a demat account, as investors can invest through any mutual fund platform.
How its Function: The FoF pools money from investors and uses it to buy units of the underlying Gold ETF, providing an indirect yet efficient route to gold investment.
3. International Gold ETFs
These funds provide exposure to global gold prices, which are denominated in US Dollars. This allows Indian investors to hedge against both inflation and currency (INR) depreciation simultaneously.
How its Function: The fund invests in overseas Gold ETFs, and the returns for an Indian investor are a combination of the change in international gold prices and the INR-USD exchange rate.
Pros and Cons of Gold ETFs
Due to recent events in the global market and shifts in trend among young professionals and experienced investors, gold exchange-traded funds (ETFs) have emerged as one of the safest and most well-liked investing options.
In 2024, India will have an unexponential growth in the gold exchange-traded funds (ETFs), surpassing ₹31,000 crore, according to AMFI data. This underscores the growing confidence in ETFs.
But like every investment product, gold ETFs come with their share of advantages and disadvantages. Let’s break them down.
Pros of Gold EFTs:
Liquidity and Convenience: just like shares, gold ETFs can be bought and sold on stock exchanges while offering easy entry and exit for investors.
Transparency – The Price of each unit is closely correlated with current gold price, providing clear price discovery
Low Risk: Gold lowers total portfolio risk by serving as a safeguard against inflation and market volatility.
Cost Efficient: Gold ETFs only carry an expense ratio, which typically varies between 0.5% and 1% annually, in contrast to jewelry purchases that come with manufacturing charges (5%–15%) or bullion that requires storage costs. When compared to actual gold, this greatly increases returns over time.
Regulated by SEBI: These asset management companies are regulated by SEBI, which ensures the supervision of trustees and custodians, oversees the management, and guarantees investor protection
Cons of Gold EFTs:
No Physical Ownership: Unlike buying coins or bars, investors in Gold ETFs do not actually “own” the gold. For those who see value in possessing physical bullion—whether for cultural, personal, or emergency purposes—this may feel like a limitation.
Requires Demat Account : Investing in Gold ETFs mandates having a trading and demat account. For first-time investors, this adds an extra step compared to simply purchasing gold jewellery or digital gold. However, once set up, the process becomes seamless.
Market Risks: Though gold is often seen as a safe-haven asset, its prices are not immune to global economic trends. Factors such as interest rate hikes by the US Federal Reserve or changes in demand from central banks can influence gold prices and, consequently, ETF returns.
Gold ETFs vs. Alternative Gold Investments
In case are still wondering weather the ETFs good or any other gold investment, here’s a quick comparison table for you:
| Feature | Gold ETF | Physical Gold (Jewellery/Coins) | Sovereign Gold Bond (SGB) |
| Ownership | Units in Demat Form | Physical Possession | Government Bond in Demat Form |
| Storage Risk | No | Yes (Theft, Damage) | No |
| Purity Concern | No | Yes | No |
| Making Charges | No | Yes (for Jewellery) | No |
| Additional Income | No | No | Yes (2.5% p.a. interest) |
| Liquidity | High (Stock Exchange) | Variable | High (Stock Exchange post-lock-in) |
| Tenure | Perpetual | Perpetual | 8-year maturity |
Conclusion:
Investing in gold ETFs offers young professionals liquid, low-cost access to gold without the hassle of physical storage. They combine gold’s timeless hedge value with the efficiency of a publicly traded security.Record gold prices and a surge in global inflows in 2025 prove the importance of Gold ETFs in portfolios.The first step for investors who want to enhance portfolio resilience and meet long-term objectives is to make sure their portfolios are as resilient as possible.
With platforms like SBI Securities,accessing and trading gold ETFs has never been easier. As always, it’s essential to conduct thorough research and consider your financial goals before making investment decisions.
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