Gold Exchange Traded Funds

Inflow in Gold Exchange Traded Funds (Gold ETFs) plunged by 90% to ₹459 crore in 2022 due to rising prices of yellow metal, increasing interest rate structure coupled with inflationary pressure, data with Association of Mutual Funds in India (AMFI) showed.

About Gold Exchange Traded Funds (Gold ETFs) –

• They are commodity-based exchange-traded funds with an underlying asset as gold.
• They are passive investment instruments that are based on gold prices and invest in gold bullion.
• Gold ETFs are units representing physical gold which may be in paper or dematerialised form.
• One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity.
• Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments.
• They are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company.
• It can be bought and sold continuously at market prices.
• There is a complete transparency on the holdings of a Gold ETF due to its direct gold pricing.
• ETFs have much lower expenses as compared to physical gold investments.

What is an Exchange Traded Fund (ETF)?

• An ETF is a collection of investments such as equities or bonds.
• It is a basket of securities that trades on an exchange just like a stock does.
• ETF share prices fluctuate all day as the ETF is bought and sold, which is different from mutual funds, which only trade once a day after the market closes.
• ETFs can contain all types of investments, including stocks, commodities, or bonds
• They have cheaper fees than other types of funds.

What is Passive Investment?

• It is an investment strategy wherein investors buy securities that mirror stock market indexes and hold them long-term.
• It is a strategy that focuses on replicating the index performance as opposed to daily buying and selling.
• Passive investing seeks to avoid the management fees and high transaction costs that frequent trading can cause.