In India, gold is bought on several auspicious days and occasions, based on different cultures and beliefs. One such day is Gudi Padwa which marks the beginning of the new year according to the Hindu calendar. On this occasion, as a sign of the beginning of prosperity, people tend to buy gold. So, this year, if you are planning to buy gold, you may want to consider buying gold in the form of Gold ETF.
In addition to being a treasure trove of gold, it is considered a safe haven. This is because inflation rises in uncertain times, which lowers the value of the paper currency. On the other hand, it cannot be devalued like gold coins. Thus, the yellow metal can effectively protect the portfolio against inflation. Its greatest virtue is that it remains valuable throughout the coin and geographically.
From an investor’s point of view, gold should be viewed from the perspective of asset allocation. The general rule is that anyone can allocate -15 10-15% of a portfolio towards gold. The best allocation in one’s portfolio can be decided in consultation with a financial advisor. There are multiple ways through which one can take gold exposure. Apart from physical gold, an investor may consider investing in options like Gold ETFs, Gold Funds / Funds of Funds or Sovereign Gold Bonds.
Considered from a portfolio perspective, Gold ETF emerges as the best choice. A Gold ETF is an exchange-traded fund (ETF) that aims to track the value of the internal physical gold. In other words, buying a Gold ETF means that an investor is buying gold electronically.
Compared to physical gold, Gold ETFs offer some distinct advantages. In the beginning, an investor does not have to worry about storage and theft because gold ETFs are kept in demat form. Second, the cost of acquisition is lower due to the absence of charges and other related costs. Third, there is complete flexibility in buying and selling.
Since gold ETFs are listed on the exchange, an investor can make a transaction at any time during the trading session. Fourth, there is no lock-in period. Fifth, investors can start hoarding gold even with a small amount of money. For all these reasons, investor interest in Gold ETFs has increased over time.
An investor without a demat account may consider investing in a Gold Fund. If an investor plans to meet the needs of a golden future, such as a wedding, then such an investor might consider SIP for less money. 1,000 per month in the fund’s Gold Fund. This will enable the investor to collect the gold unit within the stipulated time.
So, if you are an investor whose investment opportunities hold gold as an asset class, Gold ETFs may be the best way to get in touch with the yellow metal. If not here’s a new product just for you!
By, Nitin Kabadi, Head – ETF Business, ICICI Prudential AMC