Gold jewellery, with its rich cultural, historical, and economic significance, has symbolised affluence and prosperity throughout history. Beyond its cultural and symbolic roles, gold acts as a tangible investment and economic hedge, making it an important asset that Indian households own.
Craftsmanship in gold jewellery reflects artistic heritage, enhancing beauty and self-expression. Its portability and liquidity make it a practical form of wealth, serving as cherished heirlooms that connect generations. In relationships, especially through wedding and engagement rings, gold symbolises enduring love. This makes gold jewellery a timeless and treasured global asset.
However, if you are looking to buy gold in the form of jewellery to address a future requirement like a wedding, then there is a better way to save up to buy gold at a future date. This is where Gold Exchange Traded Fund (ETF) comes in.
The Golden Dilemma: Jewellery or Gold ETFs?
Unless you plan to buy gold jewellery for personal consumption, for most of all other purposes, Gold ETFs come in handy. Gold jewellery comes with hefty making charges and the cost of storage. More importantly, trends evolve, impacting the desirability of specific jewellery styles/designs. Therefore, buying and storing gold jewellery for your children’s wedding which maybe a decade or more away and then seeing the style change can affect your budget. This is because when exchanging for the latest design, you will end up paying the making charges twice – once during the original purchase and then on the new jewellery design as well. Also, gold price tends to vary from state-to-state and jeweller-to-jeweller, which can further impact the buying price.
Why Gold ETF?
Now, let us consider how Gold ETF tends to be beneficial. A Gold ETF is a financial instrument that invests into gold bullion and is designed to track the domestic physical gold price movements. They are traded on the stock exchange just like any other stock. Hence, one can buy or sell gold units at any time during the trading hours. Here, one need not worry about storage as the ETF units are held in electronic form in a demat account and is accessible any time of the day.
Now, when it comes to the purity of the bullion that the ETF invests into, investors can be rest assured that a Golf ETF is backed by physical gold with a purity of 99% or more. The underlying gold of an ETF unit is securely held in vaults and is tightly regulated by the market regulator SEBI (Securities and Exchange Board of India). In effect, unlike physical gold, Gold ETFs do not incur making charge, insurance, storage costs, making Gold ETF a cost-effective way to invest into gold. Given that the value of the ETF is based on the value of underlying gold, if there is a rally in gold price in domestic market, the same will be reflected in the price of Gold ETF and vice versa.
Another advantage that Gold ETF offers is the affordability aspect. When buying gold jewellery, the cost of acquisition is relatively higher. As a result, the buyer first accumulates the corpus and then heads for the purchase. However, in case of Gold ETFs (denominated in unit form), the cost of purchase is very low. For example: One unit of ICICI Prudential Gold ETF costs approximately Rs. 55. Given the lower cost associated with ETF, gold becomes accessible to a broad range of investors, especially even those with a limited budget. The one aspect that investors must be mindful about on selling gold ETF units is you do not receive physical gold, but the cash equivalent of the units held.
If you are an investor looking to buy gold for future purpose such as weddings or other events, then investing steadily in Gold ETFs over the years can be an optimal option. This will ensure your investment moves in sync with the price of physical gold and when required you have the required corpus in hand to make the purchase. In effect, Gold ETF brings together the market sophistication and the timeless allure of gold, making it a win-win scenario for the investor.
The author is Principal -Investment Strategy, ICICI Prudential AMC.
Disclaimer: Mutual Fund investments are subject to market risk, read all scheme related documents carefully. All information and content shared in the article are for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. It is not an offer to sell or the solicitation of an offer to buy. Before taking an investment decision based on any such information, please contact your financial advisor.
