What are Gold Exchange Traded Funds?

Gold exchange-traded funds (GETFs) are special types of ETFs benchmarked against the price of gold. In India, it all began on 19 March 2007, when Benchmark Asset Management Company, launched Gold BeES on the National Stock Exchange of India.

Subsequently, UTI Mutual Fund listed a GETF on the National Stock Exchange of India. The objective of UTI Gold Exchange Traded Fund was to provide returns that, before expenses, closely track the performance and yield of gold. Every unit of UTI Gold Exchange Traded Fund approximately represents one gram of pure gold. Units allotted under the scheme are credited to investors’ demat accounts. Several other financial institutions including State Bank of India, followed suit.

What are GETFs? These are nothing but mutual fund units that are traded on the exchange just like a listed share of a company. During market trading hours, investors can submit ‘buy’ or ‘sell’ orders, which are executed by market makers. If investors require cash, they can redeem their ETF units, though they have to incur some cost for redemption.

Investing in gold through the ETF route comes with a number of advantages over holding physical gold for investment. Apart from the cost advantage of ETFs, there is also the risk of safely holding physical gold and the issues relating to the purity of the yellow metal when bought from the market. In addition, gold ETFs enjoy some advantages from the taxation point of view.

Gold ETFs have emerged as one of the most cost-effective ways. Not only do they provide ease of trade, the high profit margins of jewellers and banks are easily done away with since they are traded at near-market values. Globally, investors choose gold ETFs for being a good hedge against stock market volatility. Not to mention, the depreciation of the dollar.