AKSHAYA TRITIYA SPECIAL: REASONS TO PREFER GOLD ETFs OVER PHYSICAL GOLD

Akshaya Tritiya is considered an auspicious time for investing in Gold. India has a long-lasting relationship with Gold due to its ability to uphold its intrinsic value over the long term. However, it’s about time that people reconsider buying physical Gold such as Gold coins or jewellery. This Akshaya Tritiya, explore the relevance of Gold ETFs as a valid investment avenue and portfolio diversifier.

What are Gold ETFs?

Gold ETF is an exchange-traded fund (ETF) can be bought and sold easily like a company stock. Gold ETFs are passive investment vehicles that track Gold prices. They are backed by physical Gold. They offer investors exposure to the Gold market using small denominations that are easy on the wallet.

What are Gold Mutual Funds?

Gold Mutual Funds are essentially Fund of Funds scheme with underlying investment in Gold ETFs. They offer investors the flexibility of investing through an SIP thereby helping you maintain a strategic allocation to Gold.

How does Gold ETFs and Gold Mutual Funds trump physical Gold?

  • Backed by physical Gold of 99.5% purity or above

  • Transparent & Real-time prices linked to international Gold price

  • No lock-in can be liquidated easily

  • Traded on the NSE & BSE like a company stock

Additionally, investing in Gold ETFs or Gold mutual funds does not require you to pay for locker or storage charges. Also, GST credit is offset when redeeming from Gold ETFs at the scheme level.

Gold as a strategic portfolio diversifier

Gold and stock markets generally share an inverse relationship. Instead of tactically investing in Gold ETFs every time the equity markets are going through rough patches, it’s time to invest in Gold as part of your asset allocation from a long term and strategic point of view. At any point, investors can allocate upto 20% as part of their diversified portfolio.

Why is it the right time to invest in Gold?

Gold shines during periods of macroeconomic uncertainty and helps cope with inflation better. This is because inflation can lead to devaluation of currencies. However, Gold prices generally increase in line with the rate of inflation. This was obvious during the recent banking crisis or when the governance of a major listed company was in question. A slowing economy and sticky inflation are conducive for Gold.

Therefore, Gold ETFs or mutual funds is an ideal investment for investors who want to avoid the storage hassles and pricing markups associated with physical Gold. This Akshaya Tritiya, use the opportunity to invest smart using Gold digitally.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

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I have a silly question.

If gold ETFs are so much better than physical gold, why do all central banks of the world store tonnes and tonnes of physical gold in their vaults.

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Even the digital gold like gold etfs you are asking about are backed by physical gold.

At retail scale, the easy of managing digital gold is better than physical.
From storage/ access / loan or pledge to even the quick purchase/sell etc is more convenient.

Both have their own risks.

Because for a central bank physical gold is the last ammo in the arsenal. Its not like they don’t prefer it in paper asset form, it’s because they carry a sovereign risk. Imagine RBI having 100cr of goldmann Sachs physical gold ETF and we go to war with Pakistan and America/nato enforces sanctions (effectively banning us from SWIFT and can’t liquidate our ETF’s) . So it’s a sovereign risk.

Also it’s lot easier to get a loan from IMF or from other central bank with physical gold for a country. The plus point here is they won’t enforce us the Govt to cut down on spending. Remember 1990’s where everyone was high on communism & socialism , and economy was worse , the Chandrasekhar govt airlifted tonnes gold to bank of England & Swizz(IMF) to get a loan.

As far us retailers , it’s lot safer, far safer these days with aadhar, new IT system and SEBI regulation. Those days of Harshad Mehta is over. It makes a lot of sense to hold gold ETF for investment purpose.

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And where is the physical gold that backs digital gold kept?
Somewhere I read, in Bank of Nova Scotia.
https://groww.in/blog/best-gold-etfs-in-india

@Jayadratha Thank you for the question.

From the central bank’s perspective, storing physical gold as part of its reserves makes sense as it is accepted in all countries. However, the typical retail investor is not a central bank, he is interested in earning returns from gold and diversifying his investment portfolio. Moreover, it does not make sense paying extra for making and storage charges or buying in bulk when he can simply buy in smaller denominations using Gold ETFs or Gold mutual funds. For instance, the Gold that backs the Quantum Gold Fund ETF is 24 carat gold sourced from London Bullion Market Association accredited refiners and is stored in professional vaults on behalf of the investors.

Also, SGBs.

How to convert GOLD COIN/BAR to Gold Jewellery? Do we have to sell Gold bar and pay LTCG and buy jewellery?

Is there anyway to save LTCG tax on this ?