How to buy ETFs?

by Manshu on October 20, 2009

in ETF

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Image by John & Fish

This question crops up in comments from time to time, and I thought it would be a good idea to do a quick post on it.

How to buy ETFs?

ETFs can be bought just like stocks, and if you already have a stock portfolio, buying an ETF should not present any problems to you at all. You have to find the symbol of your ETF, go through your broker, place a market or limit order for it, and you are done. That’s it – it’s that simple.

Possible cause of confusion

It is my conjecture that a little confusion is caused on this topic by the following two statements (both of which are true and seen often):

  • ETFs can be traded like stocks
  • ETFs can act as an alternate to mutual funds.

It is true that ETFs are like mutual funds because they hold positions in underlying assets such as stocks, future contracts, commodities etc. (like mutual funds).

However, the difference is that they trade on a stock exchange all day long like a stock (unlike a mutual fund). That also happens to be the dominant similarity they have with stocks.

It seems to be me that a lot of people hear that they can buy ETFs instead of mutual funds, and try to buy ETFs like they would buy mutual funds. But, when they are unable to do this, they get confused.

This is just a guess though, and it could well be that the question crops up because people are just unfamiliar with them. There is so much information on asset classes, risk management, asset allocation and other subjects of investment management — that sometimes it becomes difficult to know where to start, and find answers to even simple questions.

{ 48 comments… read them below or add one }

Om Prakash Sharma October 20, 2009 at 3:37 am

I am still not clear about the ETF. Specially I am intersted in Gold ETF.The input given in your article is good.
Urs
O P Sharma

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Manshu October 20, 2009 at 4:23 am

ETFs are like mutual funds. A mutual fund buys shares of another company or commodities like gold. Same way ETFs also buy assets.

The difference is that they will trade on a stock exchange like a stock. So unlike a mutual fund which has a NAV published at the end of the trading day, an ETF will have a price at all times.

Here is a list of Gold ETFs in India

http://www.onemint.com/2009/09/07/gold-etf-in-india/#comments

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Om Prakash Sharma October 20, 2009 at 9:40 am

Thanks for response. Tomarrow I shall contact my broker and come back to you if there are still any doubts on the subject.
Thanks
Urs
O P Sharma

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pradeepsingh October 31, 2009 at 11:35 pm

how many ETFs are there currently in indian market, and is there any regulating authority for them

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Manshu November 1, 2009 at 9:13 am

Here is a list of Gold ETFs in India:

http://www.onemint.com/2009/09/07/gold-etf-in-india/

You can see a complete list on NSE’s website:
1. Goto http://www.nseindia.com/
2. Place your cursor over: ETFs
3. In the menu that appears, click on “ETFs launched on NSE”

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pradeepsingh October 31, 2009 at 11:39 pm

how long a retail investor have to remain in the market to make a reasonable gain , well i know that in market nothing can be predict , but in advise form how can i select etf

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Manshu November 1, 2009 at 9:07 am

Personally, I think to really make money in the market, investors should have very long horizons, upwards of five years or so. Not having a long term horizon leads to selling stocks in panic and booking heavy losses.

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aathi October 30, 2010 at 4:18 am

what is the minimum amount of investment in gold etf in india?
how to pay?
mode of payment fully or partially/(for example if i would like to buy gold for 1 lakh how much i have to pay?
percentage of broker’s commission?

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Manshu October 30, 2010 at 4:22 am

You can buy just one unit of gold ETF the cheapest is Quantum gold at about Rs. 950 currently.

This is just like buying a share so if you have done that this is exactly the same. Brokerage, commissions, mechanism, payment everything is the same.

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pradeepsingh October 31, 2009 at 11:42 pm

i have 600 gm of raw gold can i invest it in certain form , i doesn’t want to loose it (by selling it) nor want to deposit it in bank locker, please inform me to get best of it

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Manshu November 1, 2009 at 9:05 am

I am not aware of any form in which you could invest it in (outside of the options you mention)

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Arijit Upadhyay October 26, 2011 at 12:20 pm

I think one option could be to take Gold Loans from Muthoot, Manappuram, or even HDFC Bank now! They charge approx 1% per month for the amount taken, So it is around 12% a year if you pay the interest monthly or about 14% if you pay intrerest cumulative. On the other hand Gold returns are approx around 35-40% for over last 3 years. So you gain about 20-25% every year at current trends for last 3 years.

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Manshu October 26, 2011 at 6:54 pm

Just because gold has gone up in the last 3 years doesn’t mean it will go up at the same rate in the next year as well. Leveraging up to bet on some stuff that *may* go up is not wise.

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Arijit Upadhyay October 27, 2011 at 12:04 am

True, but if the gold prices are seen over a period, for even say 40 year period, this is one commodity whose price has mostly been upward.
Ref: http://goldprice.org/gold-price-india.html

Following is a table of 22 carat gold prices per gram over 37 years, which will give an accurate idea of gold price fluctuations.

Date Goldrate Years Compound Rate of increase per year
1-Jan-74 19 37.84 13.96%
1-Jan-92 332 19.83 11.09%
6-May-98 425 13.48 14.60%
11-Nov-03 572 7.96 21.35%
5-Oct-07 948 4.06 29.05%
17-Jan-09 1319 2.77 28.96%
11-Aug-10 1910 1.21 31.95%
25-Oct-11 2670 0.00 0.00%

Now if an investor wants to unlock the potential of family gold while not completely parting away with it, I thought buying Gold ETF from Gold Loan money could be a way, since ETF’s are investing around 95% money in physical gold only.

As you correectly said, risks are definitely there and so caution and proper knowledge of Gold ETF’s should be there before taking the risk.

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pradeepsingh November 10, 2009 at 1:02 am

is there any NFO or IPO for ETFs to buy them fresh from the markets

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Manshu November 10, 2009 at 5:19 pm

ETFs have NFOs like mutual funds, and if you are looking to invest in newly launched funds, then that is the option for you.

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pradeepsingh November 10, 2009 at 1:05 am

how i can get fresh Etfs?

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pradeep singh November 17, 2009 at 9:51 pm

how i will identify that a particular NFO is for ETF or just an mutual funds’ NFO?

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Manshu November 18, 2009 at 7:05 pm

That will be mentioned in the offer document, so you can find it there. I think it will be normal for news articles to mention that too, so it won’t be that hard. If you had anything specific in mind, you can drop in a comment here too.

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nikhil November 5, 2010 at 9:01 am

in gold etf is there any possibility of geting dividend on investment.

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Manshu November 5, 2010 at 9:48 am

No Nikhil, Gold ETFs normally don’t pay dividends.

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s s rawat December 12, 2010 at 2:41 am

What is the better option to invest in Gold _ ETF or Gold coin ?

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Manshu January 2, 2011 at 1:54 am

There is no clear cut answer to that; depends on what you want to use it for, and what your comfort level with storing physical gold is, how easily can you sell physical gold etc.

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Vishwanatha Sangam January 1, 2011 at 9:32 am

Hi,
Wish you happy new year.

I have a doubt. Why the value of Gold ETF changes as for different company evethough at a perticuler time the rate of standard gold remains same.
What is the basic difference between different companeys selling the gold ETF?

Thank you,

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Manshu January 2, 2011 at 1:53 am

Happy new year to you too.

There are two reasons for difference:

1. Expenses: Each fund incurs some expenses to manage the ETF, and then that money spent is reduced from the value of the fund, so a fund with lower expenses will have a have a higher NAV with another fund with higher expenses.

2. Actual allocation to gold: Not 100% of the amount of a fund is invested in gold, some of it is spent in debt instruments, and other liquid funds to have cash for redemptions and meeting expenses.

These two factors combined together account for difference in prices among different funds.

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Jai January 3, 2011 at 8:08 am

Manshu,

Wish you a very happy new year 2011!
I would like to invest in gold EFT but i have no much idea on this. Currently I reside abroad and how can I start staying here. As per my understanding, I need to open an demat account . Is it possible to open an demat account online?

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Manshu January 3, 2011 at 8:15 am

Yeah, that’s the first thing Jai – NRIs are allowed to invest in gold ETFs but you need to get yourself a demat and trading account first. I don’t have any experience in this but I’d recommend filling up online forms of a few banks, and have their representatives call you.

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Mihir Mehta January 14, 2011 at 7:25 am

Searched many pages but still confused and not understand,how to invest in Gold ETF

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Manshu January 14, 2011 at 9:35 am

Have you ever bought shares Mihir? Because if you have then ETFs are bought in the same way. So, let me know if you have ever bought shares or not, and I’ll tell you how to go about buying ETFs.

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bemoneyaware October 27, 2011 at 7:47 am

How to buy ETF:

As Manshu said it is like buying a share. Demo of icicidirect.com shows how to buy a share. For ETF steps are as follows

1. You need a Demat account along with broker who is a member of NSE to buy a Gold ETF.
Some of the brokerage firms are ICICI Direct, HDFC Securities, KOTAK Securities and India Infoline, Geojit, IndiaBulls, Sharekhan.

2. Once you have a brokerage account you can buy Gold ETF by placing an order like a normal stock order to buy listed Gold ETF. Just like shares they have Symbols:
Benchmark Mutual Fund – Gold Benchmark Exchange Traded Scheme (NSE Symbol: GOLDBEES)

Kotak Mutual Fund – Gold Exchange Traded Fund (NSE Symbol: KOTAKGOLD)(See price chart)

UTI Mutual Fund – UTI Gold Exchange Traded Fund (NSE Symbol: GOLDSHARE)

Reliance Mutual Fund – Gold Exchange Traded Fund (NSE Symbol: RELGOLD)(See price chart)

Quantum Gold Fund – Exchange Traded Fund (ETF) (NSE Symbol: QGOLDHALF)

Hope it helps.
P.S:Icicidirect.com is just mentioned for demo and is not suggested that u open an account there.

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Mihir Mehta January 14, 2011 at 7:26 am

Wanna invest smaller amt but……..still not clear how to invest?

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kiran January 26, 2011 at 10:22 pm

Hi,
I have a doubt regarding ETF, if I buy ETF on monthly basis say 2000 rupees, and after 1 year i want to sell my units, my question who will buy these units and the amount which i will get depends on the current gold price.

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Manshu January 27, 2011 at 8:37 am

Kiran,

The buyer will be another individual like you. It is exactly like shares, so there will be someone else at the other end of the trade.

The amount you get will not depend on the current gold price, but on the future gold price – I mean the gold price on the date when you decide to sell.

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Mala February 1, 2011 at 7:56 pm

Hi,
Is there a way to gift someone Gold ETFs in place of physical gold ?

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Manshu February 2, 2011 at 7:22 pm

You can’t give a gift of a physical gold ETF.

I’m not sure how one goes about gifting a gold ETF but that will be similar to transfer of share, you will have to figure out the details and tax implication though because I’m not familiar with those.

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sunil prasad September 28, 2011 at 1:48 pm

how can buy etf gold fund

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Manshu September 28, 2011 at 4:15 pm

The same way you buy any other shares – you can buy them through any trading account.

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Tax Savings October 27, 2011 at 5:18 pm

Investing in gold is pointless if not in ETFs. If you buy physical gold, you lose money in making charges and storing gold in lockers etc. ETF is convenient to transact and is certianly a more sophisticated way of investing in gold.

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V.K.VARMA April 27, 2012 at 9:10 pm

Dear Manshu,
1) By investing in Gold ETF, one does not have physical gold, which saves you storage, gives safety, and at the same time, like stock the value appreciates mainly these days, but also can depreciate. Storing in physical form risks, as such are not there.
2) My question when you want to sell Gold ETF, do you get the value back in cash in your Demat Account or can you get in physical form, i.e. gold? I see Gold SPDR investment company having tonnes of gold in stock value.
3) Can you buy trading in Gold SPDR rather than in Benchmark Mutual Fund – Gold Benchmark Exchange Traded Scheme (NSE Symbol: GOLDBEES);Kotak Mutual Fund – Gold Exchange Traded Fund (NSE Symbol: KOTAKGOLD) UTI Mutual Fund – UTI Gold Exchange Traded Fund (NSE Symbol: GOLDSHARE)Reliance Mutual Fund – Gold Exchange Traded Fund (NSE Symbol: RELGOLD)Quantum Gold Fund – Exchange Traded Fund (ETF) (NSE Symbol: QGOLDHALF)
WHICH ONES CAN BE OFFERING MORE SAFETY? GOLD SPDR IS HAVING TONNES OF GOLD IN PHYSICAL FORM.
Kind regards
V.K.VARMA

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Jitendra P.S.Solanki April 28, 2012 at 6:31 am

Dear Mr.Varma,

In gold ETF you cannot buy physical gold hence when you sell you get the cash value in account.There is an option e-gold now which gives you delivery of physical gold but you have to buy it from National Spot Exchange. With regard to safety, an ETF is always a good proposition since you save lot of cost which you have highlighted above and risk associated.

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Manshu April 28, 2012 at 6:52 pm

SPDR Gold is listed in US not in India, so you can’t directly buy that. I guess you could buy it activating foreign stocks in your trading account but I’m not sure if GLD is one of the approved stocks or not.

Regarding safety, SPDR has tonnes of gold but it also has tons of investors who have claims to that gold, so just because it has more gold in its warehouses doesn’t make it safer than the other options.

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Lucky Agarwal May 15, 2012 at 10:34 am

Hi,

Can i buy ETF direct from the bank and sell whenever i want..?

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dinesh g May 18, 2012 at 10:43 am

i want to invest rs.100000 in etf. what will be the return within one month. how can i sell and buy again

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vadhana July 30, 2012 at 11:02 am

How do i get to know that the expense of the particular company is lower than other when we invest in gold etf.

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Manshu July 31, 2012 at 5:50 am

It is commonly declared so you will find that in news articles about it. Value Research also publishes this and then of course the website of the fund also has this info.

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azeez October 7, 2012 at 3:01 pm

hi
i am working in bahrain, and i want to buy some gold etf,I’ve PAN card and a SBI saving account in bahrain. but no demat or trading a/c.
how can i process further if u please help me with that.

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Manshu October 7, 2012 at 7:26 pm

You need a Demat to do this and then you need a NRE / NRO account setup that’s linked to this demat account as well. Call your SBI bank and they will tell you the process.

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bemoneyaware October 8, 2012 at 4:49 am

Quoting from SBI bahrain website
Demat and Portfolio Investment Schemes in India for NRIs

To opt for Demat facility and to have the Portfolio Investment Scheme operationalised, please contact any authorised branches of State Bank of India in India. For more details, Check out SBI NRI Services (https://www.onlinesbi.com/nri/) Your enquiries on NRI services can be sent to sbifcbgn@batelco.com.bh

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