While investing in gold ETFs experts say investors need to factor in the fund size other than the expense ratio of the Gold ETF so that the investor is offered good liquidity.
Gold in an investor's portfolio acts as an effective diversifier, along with alleviating losses during economic downturns and tough market conditions.
After phenomenal gains through 2018 and 2019, as well as in the first half of 2020, gold prices have been weak in the second half of 2020. Industry experts, however, say gold is still an integral part of one’s portfolio, even though gold prices have declined 6.4 per cent in the last six months.
For quite some time now, the government has been promoting financial investment into gold with sovereign gold bonds (SGBs). Along with that, Gold ETFs are also gaining interest as another investment option among investors.
Industry experts say gold in an investor’s portfolio acts as an effective diversifier, along with alleviating losses during economic downturns and tough market conditions. It acts as a strategic asset in one’s portfolio.
For investors who want high liquidity from their gold investment, experts say Gold ETF is the ideal choice. Gold ETFs can be purchased by maintaining a Demat account. Investors also get the option to invest in them as SIPs.
Even though gold investment in SGBs comes with interest component besides capital appreciation and other benefits, nonetheless, gold ETFs also offers longer tenure with a good return and high liquidity similar to physical gold.
Additionally, while investing in gold ETFs experts say investors need to factor in the fund size other than the expense ratio of the Gold ETF so that the investor is offered good liquidity.
Also, note that Gold ETFs should be purchased at the market price. As an investor, you will not have to place several bids for investing in it. Having said that, experts say an investor should maintain an overall allocation of 15 per cent of their portfolio into gold.
Experts say holding Gold ETFs for a period of 3 years and more is the ideal situation for an investor to reap the best from them. Keep in mind these ETFs attracts short term capital gains tax if held for less than 3 years. Having said that, there arises long term capital gains tax if held for a period of over 3 years, unlike Sovereign gold bonds wherein proceeds from the investment does not attract capital gains tax liability on it if held until maturity (8 years term).