Gold ETFs shine on Dhanteras. Here's why

The National Stock Exchange saw brisk trading in gold ETFs on the occasion of Dhanteras on Sunday recording a turnover of Rs 1,337 crore against Rs 636 crore on the same day last year.

Gold ETF units worth 4441 kg’s were traded on dhanteras ( each unit of ETF is equal to a gram of gold), which is an 81 percent increase from last year’s dhanteras levels.

Dhanteras is considered an auspicious day to buy precious metals like gold and the exchange held a special trading session on Sunday.

[caption id=“attachment_522588” align=“alignleft” width=“380”] The biggest advantage of trading in Gold ETFs is that there is no tax liability involved, unlike in holding physical gold.[/caption]

What is Gold ETF

Gold Exchange Traded Funds is traded on all major stock exchanges. Purchasing an EFT Is like purchasing a stock on the exchanges wherin you purchase the gold online and store in in your Demat account. Every unit of gold ETF you buy lets you own 1 gram of physical gold.

Hence, gold ETFs are open-ended mutual fund schemes that invest money collected from investors in gold. These are passively managed funds and are designed to provide returns that would closely track the returns from physical gold in the spot market.

Therefore, gold ETFs combine the popularity of gold buying without holding it physically, make it possible to be traded on the bourses, and yet give investors the opportunity to realise nearly the full value of physical gold.

The rise of such investments implies that gold has emerged as a much favoured asset class because of the volatility in stock markets.

Advantages of Gold ETFs

The biggest advantage of trading in Gold ETFs is that there is no tax liability involved, unlike in holding physical gold.No sales tax, VAT or securities transaction tax is applicable on gold ETFs. On physical gold, an investor has to pay a 1% Value Added Tax. Anyone who has assets including gold worth more than Rs 30 lakhs has to pay a 1% wealth tax. Besides, unlike physical gold, investors don’t have to pay wealth tax on gold ETFs. For HNI’s, buying gold ETF’s give them the advantage of no taxes, assured and high purity and delivery for a kg and above.

Since it is traded like stocks on the exchange, it is eligible for the long-term capital gains after one year, unlike physical gold, which is eligible for long-term capital gains after three years.

Gold ETFs carry an advantage over physical gold like 99.5 percent purity assurance, so you spare yourself the consequences of misplaced trust and there are no premium charges involved either, which have to be paid while picking up gold coins or jewellery.

Unlike gold coins and bars, for which most jewellers offer only an exchange and not a buyback, gold ETFs can be sold at transparent prices across India.

Currently, 14 Asset Management Companies offer this product on the NSE platform.

The buying, maintenance and selling costs of gold ETFs are lower than that of physical gold as there are no locker charges.

Moreover, there is no risk of theft and Gold ETFs are easy to store because they are in demat form and there is no depreciation when you sell the units. Gold ETFs can be bought in units equal to just a gram or half a gram of gold.

Also there is no depreciation when one sells the units.