As gold prices inch towards the Rs 1 lakh per 10 gram mark in the domestic markets, investors who do not hold gold or have a low exposure in their portfolios can buy gold funds or ETFs.
WHAT ARE ? HOW CAN AN INVESTOR BUY THEM?
Gold ETFs, or exchange-traded funds, are vehicles that allow investors to take exposure to gold prices without the need to buy or store physical gold. They are traded on stock exchanges like regular stocks and their value reflects the performance of gold and investors can buy them during trading hours. Gold ETFs typically invest in gold bullion, gold futures contracts, or a combination of both and they aim to track the price of gold as closely as possible. Investors who do not have demat accounts to buy a gold ETF or find it cumbersome to trade, can buy a gold fund, which invests in a gold ETF
WHAT IS THE ADVANTAGE OF GOLD ETF OVER PHYSICAL GOLD?
There is no storage cost, worries of purity, making charges or chances of theft in buying gold ETF. It gives you exposure to gold as an asset class and helps you track gold prices at a very low cost. Investors can buy either a gold ETF/fund, or get exposure to gold through a multi-asset fund that buys gold as a part of its portfolio.
WHAT HAVE BEEN THE RETURNS THAT GOLD FUNDS HAVE GIVEN ?
Gold has rewarded investors well over the last decade. In rupee terms, over the last one year, gold funds have returned 29.25%. Over longer tenures of three, five and 10 years these schemes have returned an average annualised return of 21%, 13.98% and 12.26%, respectively, as per Value Research.