How To Invest In Gold Etf

Everyone wants yield, but they're stuck in a zero yield environment.

How To Invest In Gold Etf

And the place investors have found yield - dividend stocks — has become a mine field with companies announcing dividend cuts nearly every day, reducing payouts and yield.

However, one ETF seeks to pay a consistent annual distribution rate of 7% the fund's net asset value come rain or shine. The Strategy Shares Nasdaq 7Handl Index ETF (HNDL) HNDL -0.1% is the only fund that commits to a 7% yield.

In an era where the Federal Funds Rate effectively sits at 0% and the 10-year Treasury note pays a yield of 0.7%, income investors have sought yield among the usual suspects: dividend stocks, preferred stocks, closed-end funds, real estate investment trusts (REITS), master limited partnerships (MLPs) and the ETFs that hold these assets.

Most of these products have seen their yields surge as their share prices fall, some even into double digits. However, total return is what matters to investors. It doesn't do them any good to receive a 6% yield if the fund loses 20% of its value. In addition, one of the rules of dividend investing is beware of high yields as they could signal a company in trouble about to cut its dividend.

Gold, the yellow metal has from time immemorial been one of the most sought-after precious commodities. But owing gold or investing in gold need not necessarily be limited to owning it by way of jewellery. There are different ways of investing in gold. Gold is used as a way to diversify risk by investors. It brings in the element of stability to a portfolio when other asset classes have taken a hit. Thus, it plays a key role in asset allocation.

So, if you are wondering what are the different ways to invest in gold, read on:

Physical form:

Gold is often bought as jewellery but this may not be the greatest way to invest because of the costs involved in making them and the value attached to jewellery. It becomes less of an investment and has a greater sentimental value to it. However, physical gold also involves owning it by way of coins or bars. There are gold coi schemes by several banks, NBFCs and jewellers. These coins are typically available in denominations of five and ten grams, while the gold bars are of 20 grams. These are hallmarked and are tamper proof.

Gold exchange traded funds (ETFs):

Gold ETFs are akin to buying a certain quantity of gold without actually going to the trouble of physically owning it. There is no risk of owning the physical gold, as it is stored in a paper form. You would need a demat account to trade in gold ETFs. Buying or selling of gold ETFs happens on the stock exchange. If you wish to invest in gold ETFs, you can buy them through your broker with the help of a demat and trading account. You can start with as low as a single unit which is one gram of gold. You can use gold ETFs as collateral if you wish to borrow a loan.

Sovereign gold bonds:

These bonds are issued by India’s central bank, the Reserve Bank of India. They are available in multiples of 1 gm, and an investor can buy up to 4 kg. The bonds are essentially government securities and used as replacement to owning physical gold. The bonds have an eight-year tenure and you can exit in the last three years before the eighth year. Sovereign gold bonds also fetch you a 2.5 per cent interest on the initial investment. These bonds are listed on the stock exchanges and an investor can sell or buy the bonds on the exchange, once the subscription period is over.

Benefits of Investing in Gold ETFs

Gold is considered to be one of the safest investments because it acts as a protective shield against currency fluctuation and inflation. Here are some of the benefits that you can derive by investing in Gold ETFs.

Easy trading – To begin with, you just need to buy a minimum of 1 unit of gold, which is equal to 1 gram of gold, for trading in gold ETFs. You can buy and sell it with the help of a stockbroker or fund manager.

Open trading - Everyone can keep track of gold prices on the stock exchange since they are public. You can easily check the gold prices for the day or the hour without any hassle. Gold prices vary from karat to karat and keep fluctuating daily. For example, the current gold rate in Delhi ranges between Rs 33,000 and 35,000 for 24 karats, and 22 carats hallmarked gold rate accordingly.

Simple transactions - You can trade your gold ETFs at any time of the day when the stock exchange is open.

Economical - Since gold ETFs listed on the stock exchange have no entry or exit charges, you are just required to pay nominal brokerage fees.

Safe asset - Gold prices don’t fluctuate very much. So even if your returns on equities go down, gold ETFs can protect you from huge losses.

Collateral security - Your gold ETFs can also work as collateral security if you plan to take a loan.