How to buy a gold ETF?

by Manshu on September 29, 2011

in ETF

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.

How to buy a gold etf

How to buy a gold etf

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.

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{ 17 comments… read them below or add one }

Ramesh September 29, 2011 at 7:00 am

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?

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Manshu September 29, 2011 at 4:09 pm

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.

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Ramesh September 30, 2011 at 1:33 am

thanks, Manshu.

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Chandrachur November 16, 2011 at 11:56 am

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

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Manshu November 16, 2011 at 10:39 pm

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,

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deepak agrawal February 6, 2012 at 10:47 am

i want to invest in etf gold hdfc give me advice

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Ramalingam October 7, 2012 at 9:07 pm

i want purchase gold

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suman October 17, 2012 at 10:11 pm

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

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TARANNUM October 24, 2012 at 4:58 pm

WHAT IS THE RISK FACTORS IN BUYING ETF GOLD

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Soumya March 6, 2013 at 2:00 pm

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

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Manshu March 6, 2013 at 4:56 pm

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?

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Soumya March 13, 2013 at 11:50 am

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.

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Manshu March 20, 2013 at 10:12 am

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.

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Pradip Kumar Ghosh March 17, 2013 at 7:58 pm

Is opening a trading A/c must to invest in gold ETF?

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Bhagwat Gawarkar April 23, 2013 at 11:36 am

Hi Manshu,
I am planning to open demat account. Can you please suggest me best service providers regarding demat accounts and their charges?

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Manshu April 23, 2013 at 8:26 pm

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.

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B K Barnwal December 4, 2013 at 9:55 pm

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?

Reply

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