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Gold ETF inflows hit a 16-month high in August 2023. Should you invest?

Gold exchange-traded funds (ETFs) attracted 1,028 crore in August, making it the highest inflow since April 2022, data from the Association of Mutual Funds in India (Amfi) showed. This came following an inflow of 456 crore in the segment in July. 

What are gold ETFs

Gold ETFs are units representing physical gold which may be in paper or dematerialised form. Due to their listing and trading on stock exchanges, gold ETFs are safe investments that are governed by tight regulations. The required minimum investment is one unit of the gold ETF, which is equal to the price of one gram of genuine gold. Since they are listed, gold ETFs are easy to trade on the stock market and have excellent liquidity.

Who should invest in Gold ETFs?

Investing in gold is an important component of asset allocation.

“There are many ways to invest in gold. ETFs are without a doubt one of the most popular options.  Thus, if you want to invest for the short term, gold ETF is a good alternative because liquidity is strong, but if you want to invest for the long term, SGB is the greatest option,” said Mukesh Kochar, National Head – Wealth, AUM Capital.

“Investing in Gold ETF has the potential to add shine to your portfolio. An investor can consider allocating up to 10% of the portfolio towards Gold ETFs,” said Chintan Haria, Head – of Investment Strategy, ICICI Prudential AMC.

Advantages of investing in Gold ETF

-Convenience to buy and sell gold ETF units like an equity share through a trading account

-It is safe from theft as it is stored in a Demat account

-One need not worry about the purity aspect as the investment is backed by gold bullion of only 99% purity or above.

SGB vs Gold ETFs: Where should investors park their money for long term?

However, if the investment is intended for a long period of time, Mukesh Kochar recommends investing in Sovereign Gold Bonds (SGBs). This is because SGB offers 2.50% interest per year. “Your cost of keeping is lowered by 2.50% every year, which ETFs and other gold investment options do not,” said Kochar.  

Furthermore, the return is tax-free if held to maturity, which is not the case with any other alternative. Although these are traded on exchanges, liquidity is limited, he added.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.


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Updated: 19 Sep 2023, 02:12 PM IST

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