This is a very common question here, and a lot of people are confused about what you need to do if you want to buy a gold ETF. An ETF trades like a share in the stock exchange, and if you want to invest in an ETF – you can buy it from your share broker.
It doesn’t matter that this ETF is a gold ETF – it’s all the same – you can still buy it from a share broker. You will be charged the same commission that is charged when you buy any other share, and you will continue to hold it in your Demat account.
You don’t need a separate Demat account or a trading account with the commodities exchange or anything like that – just your regular share trading and Demat account will do.
The difference comes in the way shares are taxed and gold ETFs are taxed. For starters, you pay Securities Transaction Tax (STT) on share transactions but you don’t have to pay that on gold ETFs.
Capital gains are also treated differently – shares attract a short term capital gains of 15% whereas short term capital gains on gold ETFs will be added to your income and then taxed according to your slab.
Long term capital gains are tax free for shares, but you will have to pay 10% without indexation or 20% with indexation whichever is lower plus surcharge and cess in the case of gold ETFs. Gold ETFs are still more tax efficient than holding physical gold.
So, in conclusion – as far as buying and holding of a gold ETF is concerned – it’s exactly like a share, but the tax treatment is different.
Hi Manshu,
Do you think its a good idea for a retail investor to buy directly from the fund house? Would it be cheaper than buying online?
http://www.nseindia.com/content/products/gold_etf_brochure.pdf
I had placed an order for purchase of Gold ETF. The amount has been deducted from my account but the purchase is not reflected in my accountt. Where can I see my account?
Hi Manshu,
I am planning to open demat account. Can you please suggest me best service providers regarding demat accounts and their charges?
Hi Bhagwat,
I have looked at this topic earlier and there isn’t any difference in the Demat account of one provider to another provider, you can choose one that’s most convenient and cost effective for you. The cost is the only thing that varies and I don’t have the prices for each provider’s fee and won’t be able to get that info also.
Is opening a trading A/c must to invest in gold ETF?
I want to invest in gold ETF from along time but i am not sure how to do it, I have recently opened a demat account with ICICI, Can you please let me know what is the procedure from to buy gold ETF’s after opening the demat account
Did you open a trading account with ICICI Direct also? That’s the way to buy ETFs. If you have ever bought shares then the way to buy ETFs is the same as buying shares. Have you ever bought shares?
Hi Manshu,
Thanks for your reply, yes i have opened a demat account with ICICI recently, I have never brought a share till now, just planning to invest in gold etf’s for now.
If you have a trading account with them then you can buy gold ETF from that trading account. If not then you can buy a gold mutual fund of funds and it will be more or less the same thing as buying a gold ETF. You won’t need to open a trading account for buying a gold mutual fund.
WHAT IS THE RISK FACTORS IN BUYING ETF GOLD
hi Manshu I want to buy gold ETF. I have a Dmat n trading a/c wid SBI. pls advice how to go abt it
i want purchase gold
i want to invest in etf gold hdfc give me advice
Hi Manshu,
I bought BeES Gold ETF via ICICI Direct some weeks back. I am surprised to see that there is a substantial differnce of its traded price per gram to that of the gold price per gram, which is shown as a ticker on the ICICI direct site. For eg : the ticker showers the per gram price as 2846, while the GETF shows the price as 2793. Can you throw a light, why there is so much price difference per gram? A little difference is understandable owing to operation charges etc. Thanks for your time and inputs.
Regards,
Chandrachur
Hi Chandrachur,
That’s because one unit doesn’t equal to exactly one gram – it’s an approximate measure that reduces every year due to the expenses that the ETF occurs. In this case, the ETF has been existence for a fairly long time. How close it is to 1 gram doesn’t matter – what matters is how closely it tracks the performance of gold, and most Indian ETFs track the performance of gold quite closely.
Here is a detailed post on that:
http://www.onemint.com/2011/02/15/why-do-different-gold-etfs-have-different-prices/
Regards,
thanks, Manshu.
That is right, buying Gold ETF is easy if you have a demat account.
I use ICICI direct. they charge a small brokerage per transaction meaning each transaction of SIP is charged separately same as individual ETF purchase.
The BeES rates vary a lot during the day. in SIP they choose the time and intraday price of ETF on our designated day. I wonder if it is a better idea to buy when the price is lesser rather than relying on SIP?
Well, the whole idea of investing through a SIP is that you ride out the volatility and don’t have to worry about timing the market. If you are thinking about staying invested for the next 5 or 10 years then it won’t make a difference if you got the lowest price on that day or not. Plus, there is no way for anyone to figure out what the lowest price for that day will be.