Gold ETF: No storage risk, only returns as the metal reaches for the moon

Kolkata: Gold is trading at dizzying heights. In the global market it has crossed $3,900 per ounce for the first time. Data show that gold prices have surged 100% in the past two years and by 300% since 2020. In October 2023, the price of gold in India was Rs 61,000 and the price is close to Rs 1.2 lakh now. Analysts expect it to hit Rs 1.25 lakh by Diwali which is on October 20. This year, it has climbed close to 50%.

For the vast majority of common people, buying gold jewellery was akin to buying gold for investment. However, that is one of the false notions that's prevalent among a big section of the common people. "Buying god jewellery for investment purpose is one of the most silly things to do. When one goes to sell gold jewellery, the labour charge that goes in the making of the item is immediately deducted and it can be as high as 25-30% of the jewellrey. Therefore, it goes waste," said Prasunjit Mukherjee, Chief Executive Officer of Plexus Management Services and an investment strategist for over 30 years.

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The deduction of making charge is not the only big disadvantage with gold jewellery. A big and obvious headache when buying gold jewellery is ensuring its safe-keep. Most often, one has to hire a bank locker to keep them safe. This problem with safety of gold also accompanies the purchase of gold bars and coins which are done chiefly for investment purposes. One needs to store them in a locker. Moreover, taking them out and moving with precious metals is always a challenge -- they might get stolen, or worse, robbed.

Gold ETF is a modern solution for all of the above headaches. Gold ETF can be viewed as electronic gold in the demat form. Gold ETFs or exchange-traded funds track the price of gold which is the underlying asset for this security. A very significant point about gold ETFs is that there are virtually no headaches. One, there is no making charges to be deducted when one wants to sell ETF units. Two, there are no storage charges like hiring a bank locker. Three, the expense ratio in Gold ETFs is only around 0.8%.

Moreover, gold ETFs are a transparent instrument. Also one does not have to boether about the purity of the metal that one buys if one buys jewellery. One just needs a demat account to buy gold ETFs. Even if one doesn't have a demat account, one can buy Gold Fund of Funds (FoFs) schemes. These schemes invest in Gold ETFs.

Reports says there are as many as 21 Gold ETFs in India. The AUM is at a staggering Rs 72,495 crore, the AUM rising with the price of gold. Analysts say that the ETFs which have the highest volume traded could be the ones to purchase. There is another advantage of buying golf ETF. You don't need a lot of money as you need to bu piece of jewellery. One can buy ETFs for an amount as little as 1 gram. ETFs also have no lock-in period which means they can be sold quickly at a short notice.