Gold ETF

India is the world’s largest consumer of gold with an annual demand of above 800 tones. Gold s also an important asset class in its own right as it is a currency as well as a commodity. Investing in Gold was a challenge before ETFs arrived due to issues of purity, storage, theft, sales and wealth tax. Gold is increasingly being used as a portfolio diversifier by Indian and global investors due to its correlation with equity markets and inverse correlation with the US Dollar.

Here is a look at the advantages of investing in Gold ETF versus investing in Gold through other avenues.

Comparison of Investment in Gold through Jeweller / Bank, Gold Futures and  Gold ETFs.
No. Parameter Jeweller / Bank (Bar / Coins) Gold Futures Gold ETFs
1 Purchase and sale mode Physical Physical or Demat Demat
2 Pricing May differ depending on the seller Market determined Linked to international gold prices
3 Buying Premium above gold price Likely to be high Likely to be low Likely to be low
4 Making Charges Applicable Not Applicable Not Applicable
5 Impurity Risk May exist Cannot exist Cannot exist
6 Storage Requirement Locker Locker / Commodity demat account Demat account
7 Security of Asset Investor is responsible Commodity exchange is responsible Fund House is responsible.
8 Resale At heavy discount in case of sale to jeweler. Resale to bank may not be possible. At transparent secondary market price At transparent secondary market price
9 Convenience in buying, storage and selling Low-physical movement and transfer involved Dependent on mode of delivery High – Demat
10 Wealth Tax Yes – beyond a certain holding Yes – beyond a certain holding No
11 Long term Capital Gain Tax After 3 years After 3 years After 1 year.

All Gold ETFs by default are Shariah-compliant because they either hold physical gold or cash. However, in 2013 capital market regulator allowed fund houses to invest their gold deposit in gold deposit schemes of banks up to 20% of total asset base. This enabled the scheme to earn a return on the gold they deposit with the bank and helped government in curbing gold import.

SenSage can help you in identifying gold schemes which are Shariah-compliant. If you have a Demat and Trading Account click below to invest in Gold ETF.