Gold Exchange Traded Funds (ETFs) are a great investment choice if you find buying physical gold inconvenient, or if you want to diversify your portfolio. Gold is considered a safe asset, which means that its prices are usually not very volatile.
7 tips on investing in gold ETFs
Currently, the gold market is bullish and this is a good time to invest in ETFs because you stand to make profits as the prices rise steadily every day.
Let us give you some tips that you could use if you plan to invest in gold ETFs:
- Gold ETFs are more profitable than other gold-based investments if you plan to invest large sums, or indulge in regular trade.
- Since gold ETFs come with brokerage or commission charges of 0.5 to 1 percent, shop around the ETF market a bit to find a stockbroker/fund manager whose charges are low.
- Do not choose a gold ETF product or fund manager based on low fees alone. Look at the fund’s performance over the last few years to get a clear idea of how well the fund managers handle the accounts.
- Keep an eye on the gold price trends before you start transacting. Just like with stocks, you may want to buy gold ETFs at low prices and sell them as prices go up.
- If your gold ETF is managed by a fund manager, keep an eye on your account and the trades being done for you. Regular monitoring can help you improve the performance of your portfolio.
- Gold is better as a short to medium-term investment, as long-term returns on the yellow metal are often as low as 10 percent per annum.
- Do not make too heavy or long-term investments in gold. Allotting 5 percent to 10 percent of your investment portfolio to gold ETFs is a wise idea. This will also help keep your portfolio robust and the returns stable.
Benefits of investing in Gold ETF
There are many ways gold ETFs are beneficial compared to buying physical gold. Here are some of the features of gold ETFs that make it a lucrative investment option:
- Hedge against inflation: Gold is considered a safe investment because it can be used as a protection against currency fluctuation and inflation.
- Simple trading: You need to buy a minimum of 1 unit of gold – equal to 1 gram of gold – to start trading in gold ETFs. Buying and selling the units works just like equities – you can trade through your stockbroker or ETF fund manager.
- Open trading: Gold prices on the stock exchange are publicly available. You can check the gold prices for the day or the hour without any confusion.
- Easy transactions: You can buy and sell gold ETFs at any time of the day – when the stock exchanges are open – from any part of the country. You will also not be affected by local price differences in gold due to VAT or other taxes.
- Inexpensive: Gold ETFs listed on the stock exchange have no entry or exit load for purchase or sale of units. You have to pay only around 0.5 to 1 percent as brokerage charges.
- Tax benefits: Gold ETFs older than a year attract long-term capital gains tax. However, there is no VAT, Wealth Tax or Securities Transaction Tax on gold ETFs.
- Secure investment: Gold ETFs are an easier investment than physical gold as there are no concerns over theft, secure storage or payments such as locker charges or making charges.
- Safe asset: Gold prices do not usually fluctuate very heavily. Even if your returns on equities decrease, gold ETFs could prevent you from sustaining big losses.
- Portfolio diversification: Gold ETFs are a good way to add diversity to your portfolio. Amid unstable market conditions, a diversified portfolio can give your better returns and reduces your risks.
- Loan collateral: Your gold ETFs can function as collateral security if you want to borrow from financial institutions.
Just like stock market investments, you have to be cautious while investing in Gold Exchange Traded Funds. Rash buying and selling could result in heavy losses that will affect your investment portfolio. It would be advisable to use gold ETFs as safe assets and hedge investment rather than as a daily profit-trading tool.
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