Gold ETFs are an interesting option for the investor. Tips on when you should jump onto the bangwagon.
Gold exchange traded funds (ETF) have recently started making their mark in the Indian mutual fund space. With their rising popularity, a lot of fund houses are introducing schemes in the market to cater to the needs of the customer.
In all this excitement there is one factor that is often forgotten: when should you look to invest in such schemes? We provide you with some help on how to go about taking this crucial decision.
Expecting appreciation
The basic tenet of investing is that one does expect appreciation in the short-term or the long-term. Also, it is completely dependent on the perspective or investment horizon of the individual per se. The same principle should be working for gold ETFs as well because any investor would like to invest only when he expects an appreciation in the value of the fund.
The gold ETF works on the principle that the value of the fund is linked to the gold prices. This implies that the investor will gain only when the prices of gold rise from the level at which they have bought the units. This is inherently built into the investor's expectations while investing, and the investment will be made only when he thinks gold prices are low or there is scope of appreciation.
Convenient amount
The second reason why an investor would want to use a gold ETF is because the investment can be made in a convenient amount. For instance, Rs 10,569 per 10 grams does sound like an inconvenient number to buy. On the other hand, Rs 2,000 for 10 units does sound quite comfortable.
There are some basic weights in which normal gold purchases are possible and for this very reason, the investor might have to shell out a particular amount depending upon the price of gold. This does not happen when the investor uses the gold ETF route for the purpose of investing such amounts because smaller amounts can still be invested whenever required through the purchase.
Specific condition benefit
Of course, there can be situations where one bets that international gold prices would rise. An investor who is able to spot this opportunity can take the decision to invest. In the past four years, we have seen many situations of global economic and political turmoil, when investors have shunned stocks and moved towards gold as an investment as it provides stability.
Sharp movement
Then there are opportunities when one can expect a sharp upward movement in the price of gold and this can become an opportunity for the investor. This window of opportunity often does not remain for a long time period. So, only those who move quickly will be able to gain from the situation. It is under such conditions that the investor will be able to use the gold ETF in an effective manner. Unlike other mutual funds, there is also a chance of using the intra-day volatility in prices because the investor can buy or sell the units at any time during the day. Due to this reason the investor will be able to ensure that they are able to get the best benefit of volatility.
Via Business Standard
Gold exchange traded funds (ETF) have recently started making their mark in the Indian mutual fund space. With their rising popularity, a lot of fund houses are introducing schemes in the market to cater to the needs of the customer.
In all this excitement there is one factor that is often forgotten: when should you look to invest in such schemes? We provide you with some help on how to go about taking this crucial decision.
Expecting appreciation
The basic tenet of investing is that one does expect appreciation in the short-term or the long-term. Also, it is completely dependent on the perspective or investment horizon of the individual per se. The same principle should be working for gold ETFs as well because any investor would like to invest only when he expects an appreciation in the value of the fund.
The gold ETF works on the principle that the value of the fund is linked to the gold prices. This implies that the investor will gain only when the prices of gold rise from the level at which they have bought the units. This is inherently built into the investor's expectations while investing, and the investment will be made only when he thinks gold prices are low or there is scope of appreciation.
Convenient amount
The second reason why an investor would want to use a gold ETF is because the investment can be made in a convenient amount. For instance, Rs 10,569 per 10 grams does sound like an inconvenient number to buy. On the other hand, Rs 2,000 for 10 units does sound quite comfortable.
There are some basic weights in which normal gold purchases are possible and for this very reason, the investor might have to shell out a particular amount depending upon the price of gold. This does not happen when the investor uses the gold ETF route for the purpose of investing such amounts because smaller amounts can still be invested whenever required through the purchase.
Specific condition benefit
Of course, there can be situations where one bets that international gold prices would rise. An investor who is able to spot this opportunity can take the decision to invest. In the past four years, we have seen many situations of global economic and political turmoil, when investors have shunned stocks and moved towards gold as an investment as it provides stability.
Sharp movement
Then there are opportunities when one can expect a sharp upward movement in the price of gold and this can become an opportunity for the investor. This window of opportunity often does not remain for a long time period. So, only those who move quickly will be able to gain from the situation. It is under such conditions that the investor will be able to use the gold ETF in an effective manner. Unlike other mutual funds, there is also a chance of using the intra-day volatility in prices because the investor can buy or sell the units at any time during the day. Due to this reason the investor will be able to ensure that they are able to get the best benefit of volatility.
Via Business Standard
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