Invest in gold ETFs on Dhanteras for purchasing gold jewellery later: Experts

Dhanteras 2023 gold buying: Gold prices are retreating after rising more than 7 per cent in the last month amid an increase in its safe-haven appeal owing to the ongoing violence in the Middle East.

Dhanteras 2023 gold buying: On the Dhanteras eve, gold December futures were last seen trading 0.2 per cent lower for the day at Rs 59,874 per 10 grams on MCX. Image: Reuters

Dhanteras 2023 gold buying: As India prepares for Dhanteras festivities on Friday, November 10, 2023, many may have lined up their gold purchases that day. The Dhanteras festival is typically characterised by a pickup in demand for gold and gold-related products as many consider it an auspicious day to make purchases of certain items, including utensils and other products made from metal.

Gold prices are retreating after rising more than 7 per cent in the last month amid an increase in its safe-haven appeal owing to the ongoing violence in the Middle East.

On the Dhanteras eve, gold December futures were last seen trading 0.2 per cent lower for the day at Rs 59,874 per 10 grams on MCX.

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Analysts say the recent correction offers an opportune time for investors to park their money in gold.

Analysts that Zeebiz.com spoke with weigh in on whether it is a good idea to invest in the precious metal through gold ETFs this Dhanteras.

But first things first, what is a gold ETF really?

Gold ETF: A more cost-efficient way of holding gold in non-physical form

A gold ETF or exchange-traded fund is just like a normal investment fund traded on the bourses except that it has only gold as the underlying asset. This passive investment option tracks physical gold prices in the domestic market and invests in the bullion. In simple words, gold ETFs enable investors to buy units representing physical gold, which may be in paper or demat form.

Since its value is linked with the market price of gold, buying a gold ETF instead of physical gold is a more efficient way to invest in the yellow metal.

One gold ETF unit is equivalent to one gram of gold backed by physical gold of very high purity.

How to invest in gold ETFs

Just like equity-based securities, gold ETFs are both listed and traded on both of the country’s stock exchanges BSE and NSE.

So, trading in them can be done at market prices during market hours.

Redemption of gold ETFs

When redeeming this gold investment form, you do not get physical gold, instead, you get the cash equivalent.

Expert’s take on gold ETF

“Gold ETFs are one of the leading digital gold avenues in the country today. The investment option saw inflows of Rs 1,659.5 crore in the September 2023 quarter. Units trade on the exchanges like equities, close to market prices, offering investors liquidity and price efficiency. One can start their gold investments through gold ETFs for denominations as low as 0.01 gram. Mutual fund investors can choose to invest in Gold Fund of Funds which in turn invest in gold ETFs,” said Ghazal Jain, Fund Manager at Quantum Mutual Fund.

“One should ideally invest in gold through financial, pure, price efficient avenues like gold ETFs and gold mutual funds and redeem them at close to market prices as and when you require funds to buy jewellery,” Jain said.

How do gold ETFs score over physical gold?

Gold ETFs offer a digital way to invest in gold and hence the flexibility of stock investment along with the simplicity of deploying money in an age-old avenue that offers capital appreciation over time.

“Because of its direct gold pricing, there is a complete transparency on the holdings of a gold ETF. Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold investments,” mutual fund body AMFI mentions on its website.

Simply put, gold ETFs offer a higher degree of transparency when it comes to pricing. That said, changes in gold prices get reflected in the units of gold ETFs, so one can very well track the current gold price. However, this transparency is not there in the case of gold bullion.

Taxation

“All ETFs, including debt and gold, have the same tax structure. The distinction may be found in the way the short-term and long-term capital gains are defined. When assets are held for less than three years, short-term gains are realised, while long-term gains are realised when holdings are kept for more than three years,” said Amit Gupta, MD at Sag Infotech.

“In addition to indexation benefits, a 20 per cent tax rate is applied to long-term capital gains on these ETFs. Short-term capital gains are added to the investor's yearly income and subject to taxation at the appropriate income tax slab rates,” he added.

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