How to buy ETFs?

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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 thoughts on “How to buy ETFs?”

  1. 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)
    Kind regards

    1. 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.

    2. 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.

  2. 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.

    1. 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.

  3. 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.

    1. 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.

    1. 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.

      1. How to buy ETF:

        As Manshu said it is like buying a share. Demo of 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. is just mentioned for demo and is not suggested that u open an account there.

  4. 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?

    1. 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.

  5. 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,

    1. 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.

    1. 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.

    1. 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.

  6. 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

    1. 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.

      1. 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.

        1. 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.

          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.

  7. 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

    1. 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.

    2. 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?

      1. 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.

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

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

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