With their high liquidity and transparency, they allow investors to take advantage of the lasting value of precious metals, mitigating the risks of market fluctuations and ensuring a balanced investment strategy. Over time, and with the advent of Exchange Traded Funds (ETF), investing in precious metals like gold and silver has become more accessible, cheaper and more efficient for individual investors. In fact, Indian investors have already invested over Rs 40,000 crore in gold and silver ETFs.
A modern approach to investing in gold
Gold has long been a symbol of wealth, security and protection against economic uncertainty. Traditional methods of investing in gold, such as purchasing physical gold in the form of jewelry, bullion or coins, have several drawbacks, including storage costs, insurance and liquidity issues. Gold ETFs offer a modern solution to these problems.
Gold ETFs tend to perform well in times of economic uncertainty, geopolitical tensions or rising inflation, as gold is often considered a safe haven asset.
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These are the main advantages of gold ETFs.
1. Convenience and Liquidity: Gold ETFs allow investors to hold gold units electronically, similar to how stocks are held. These units are traded on the NSE and BSE, providing high liquidity and the ability to buy and sell during market hours.2. Profitable: Unlike physical gold, gold ETFs involve minimal storage and transaction costs. Investors can purchase these units at relatively low prices.3. Purity guarantee: Gold ETFs invest in 995-grade gold, equivalent to 24-carat gold, ensuring the authenticity and value of the investment.
4. Portfolio diversification: Gold ETFs offer an efficient way to diversify portfolios and protect against inflation and currency depreciation.
Harnessing the potential of a versatile metal
Silver occupies a unique position as both a precious metal and an industrial product. Its applications range from automotive and telecommunications to renewable energy, making it a valuable component in modern manufacturing.
Silver ETFs typically perform well during periods of economic growth with high industrial demand or when investors seek assets that outperform inflation in times of economic uncertainty.
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Below are the main advantages of silver ETFs.
1. Industrial demand: Silver’s role in various industries such as electronics, solar panels and automotive components ensures a steady demand. According to the Silver Institute, industrial demand for silver reached 55%. Demand for solar photovoltaics accounted for 15% of total silver consumption and is projected to increase by 2024.
2. Scarcity and investment attractiveness: Limited supply of silver, coupled with rising industrial demand, makes it an attractive investment option. The silver market is expected to experience substantial deficits, which will increase its investment potential.
3. Cost and convenience: Like gold ETFs, silver ETFs eliminate the need for physical storage and maintenance costs. They also provide high liquidity and transparency, with investments tracked relative to the price of high-purity silver. Silver ETFs in India invest in 999 purity silver, equivalent to 99.9% pure silver.
4. Smart mix: Like gold ETFs, silver ETFs also provide a valuable tool for portfolio diversification, acting as a hedge against inflation and economic instability.
Taxes for gold and silver ETFs
Budget 2024 has enhanced the attractiveness of gold and silver ETFs for investors looking to diversify their portfolio. The revised tax structure, applicable to investments from July 23, 2024, subjects gains on sale of these ETFs to a capital gains tax of 12.5% if held for more than 12 months, and to a flat rate for shorter holding periods.
(Chintan Haria, Head of Investment Strategy, ICICI Prudential AMC)
(Disclaimer: The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of Economic Times)
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