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While Gold ETF has been around for quite some time in India, it is now that they are getting popular. In this post, we’ll have a look at what these funds are and what one should and shouldn’t do when investing in them.
Mutual funds can be differentiated in many different ways. For instance, they can be distinguished on the basis of the fund or wealth management style. As per this differentiation, there are two types of funds- actively managed funds and passively managed funds.
The funds which regularly churn the portfolio in a bid to outperform a benchmark index or market are known as actively managed funds, like equity funds. On the other hand, the funds which generate returns by replicating a portfolio of a benchmark index are known as passively managed funds, like ETF (Exchange Traded Fund).
While there are many different types of ETFs in India, Gold ETF has been gaining a lot of popularity in the last few years. If you are planning to invest in them, we have a list of some important dos and don’ts for you.
Dos
- To buy gold ETF, you need to pay commission or brokerage charges to a broker. This commission can range between 0.5%-1%. So, make sure that you shop around for a while to find fund manager or stock broker with the lowest brokerage.
- Keep an eye out for the trend in gold prices. Just like stocks, you can sell your Gold Exchange-traded fund at the exchange anytime when the price goes up. Try to buy ETF when gold prices are low and sell them when the prices are high.
- If a fund manager is maintaining your investment in gold ETF, check your account regularly. Monitoring is an ideal way to improve the performance of your fund.
- Do check the reputation of the fund house and fund manager you select. You should only work with reputed fund houses that have delivered consistent returns. You can search for them online before making a decision.
Don’ts
- While low brokerage is important, do not select a fund house or Gold Exchange-traded fund only on the basis of the brokerage. Make sure that you check the past performance of the fund to get a better idea about the future performance of the fund.
- Do not invest in Gold Exchange-traded fund for a long term. Over the past several years, investment in gold has only been able to deliver returns of about 10% in a year. Thus, it is better to invest in them for short or medium term.
- Do not overexpose yourself to gold ETF. Investing around 5%-10% of your investment portfolio is usually recommended. This will help in diversifying your portfolio while also keeping it stable and robust.
- Do not invest in Gold Exchange-traded fund without first knowing about how ETFs work. Search for them on the internet and take advice from someone experienced to make sure that you don’t lose your money in any way.
Remember these dos and don’ts when investing in gold ETFs. Be very cautious, especially if you are new to ETFs and do not take uninformed decisions as they can result in major losses.
