7 reasons why you must buy gold ETFs

As the Indian stock market gyrates to the tune of global uncertainties investors are looking out to invest their moneys in safe haven. Gold, in virtual form, can obviously be one of those safe havens.

But if you are not convinced here are 7 reasons why you must invest in gold exchange traded funds.

All that seems to be glittering these days is gold. As risk aversion takes the sheen off stocks and other investment avenues, the yellow metal's shine is only becoming more lustrous. Although the old and the wise of your family have been persistently pestering you to hoard as much of gold as you can, you're not biting the bait.

In this day and age of daylight robberies, you're unwilling to turn your house into a gold storehouse. And you just can't shake the feeling of being taken for a ride every time your local jeweller hands you the bill amid wide fake grins.

But these fears don't mean you should shy away from making a neat sum of great investments. Turn to gold exchange-traded funds instead.

Simply put, gold ETFs are instruments that invest in 99.5 per cent purity gold. These are listed and traded on stock exchanges. Every unit of gold ETF you buy lets you own 1 gram of physical gold.

All you need for investing in gold ETFs is a demat account and a trading account with a registered broker. It's as simple as trading in stocks and is a much better option that going for real gold. Here are 7 benefits of investing in gold ETFs...

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The author is co-founder and director of Bangalore-based Perfios Software Solutions Private Limited. is a personal finance software solution that provides a 360-degree view of your personal finance, with very little manual intervention.

1. They're virtual...

And so much easier to store and unlikely to be stolen. They need no lockers, no security guards, no TV cameras and no police control room numbers.

When you buy gold ETFs, though you own a certain amount of gold, you don't actually get delivery of the yellow metal. You can store the units virtually in your demat account and save yourself the trouble of having to protect your gold from prying eyes of greedy relatives, robbers and looters.

But do remember to protect the login and password to your demat and bank accounts. Just like you would to your e-mail.

2. They're pure...

And so, there's no chance of you being fooled by that smooth-talking jeweller. Unless you're a goldsmith, gauging the purity of physical gold is hard.

Gold ETFs only deal in 99.5 per cent purity gold. So by choosing them over physical gold, you spare yourself the consequences of misplaced trust. The jeweller is no longer king when it comes to gold.

3. They're priced right...

And so, you're not likely to buy gold at inflated prices. The problem with precious metals is that there is a lot of scope for price disparities (read overpricing). While one jeweller may offer the same quantity of gold at a certain price, another would have a different tag attached to it.

If your bargaining skills are not good enough, gold ETFs are the way to go.

4. They're more tax efficient...

The taxation system for gold ETFs is the same as for non-equity mutual funds. If you hold gold ETFs for more than a year, you pay a long-term capital gains tax of 10 per cent without indexation or 20 per cent with indexation, whichever is lower, on the profits made.

But in case of physical gold, you have to hold it for at least three years for the long-term capital gains tax to kick in.

Gold ETFs held for less than a year attract short-term capital gains tax. Meaning the profits are added to your annual income and taxed according to the bracket your income falls in. Twelve months is far easier to wait for than 36 months, isn't it?

5. They're easier to sell...

And get you the right price. Physical gold bought from banks cannot be sold back to them. That bought from jewellers comes with an unfair 'commission' charged when you decide to sell.

With gold ETFs, you don't have to go to 10 different jewellers who will fuss over the quality and the price before handing you your spoils. They're more liquid than physical gold and fetch you the market price.

6. They're available in small sizes...

If you ask your local jeweller to give you half a gram of gold, chances are he'll snigger. But gold ETFs are available in small denominations and you don't have to have lots of spare cash to invest in gold anymore.

One gold ETF unit represents 1 gram of gold. You can even buy half a gram of gold if that's all you can afford this month. And watch your gold pile and investments grow at the rate you choose. This isn't a benefit you will get if you go to buy physical gold -- as coin or biscuit or jewellery.

7. They're wealth tax-free...

Physical gold attracts wealth tax if you're holding more than a certain amount. At the moment, that amount is Rs 15 lakh. But there is no such taxation for gold held through gold ETFs. The cash you save on tax you can always invest in more gold... ETFs, of course.

While gold ETFs score in so many ways over physical gold, they do not give you the satisfaction of seeing and feeling the yellow metal. If it's family heirlooms that you are collecting, by all means go for real gold. But if the sought-after metal is only an investment avenue for you, gold ETFs may be the way to do it.