How to Buy Gold ETF in India: Step-by-Step Guide for Beginners

Knowing how to buy Gold ETF in India is a great way to invest in gold if you do not want to buy physical gold such as coins, bars, and jewelry. You can buy and sell Gold ETFs the same way you buy and sell shares. Before you are able to buy Gold ETFs, you will need a Demat account, trading account, and a linked bank account.

Want to Invest in Gold ETFs? Looking to buy Gold ETFs? Get assistance with exploring Gold ETF options and understanding the investment process. Getting started with Gold ETF investments.

This step by step guide explains what to check before choosing a Gold ETF scheme, how to place an order, how to confirm units have been credited to your account, and the differences between a Gold ETF and a Gold Fund of Fund (FoF).

What Is a Gold ETF and How Does It Work?

A gold ETF is a unit of an Exchange Traded Mutual Fund scheme that tracks the price of gold in India. The scheme invests in physical gold or gold related permissible instruments and its units are listed on a stock exchange. Each unit represents an interest in the scheme and the holder does not receive coin/jewelry.

When the price of gold in the market goes up, the price of Gold ETFs go up, and vice versa. Movement of prices will not match with the headline prices of gold, due to expenses, cash holdings, tracking errors and other market conditions. Like other ETFs, units of Gold ETFs are traded on a stock exchange, during the trading hours of the day, and the price of units vary during the trading day. If you are new to the world of ETFs, and want to know more about how they work, please read how ETFs work in India.

What Do You Need Before Buying a Gold ETF?

• Demat account: holds your units electronically, like shares.

• Trading account: lets you place buy and sell orders through a stockbroker.

• Linked bank account: to pay for purchases and receive sale proceeds.

• Completed KYC: identity and address verification with the intermediary, using your PAN and bank details.

If you already buy shares through a trading platform, you may already have the setup needed. Check that your account is active and that your bank and KYC details are up to date. A Gold FoF is different: it is a mutual fund scheme and generally does not need a Demat account when bought through the regular mutual fund route.

How to Buy Gold ETF in India: Step-by-Step Process

Step 1: Open or check your Demat and trading account

If you do not have these accounts, select a stockbroker and open your accounts, and complete KYC. Verify that you can login and access the segment of the exchange where the listed ETFs trade.

Step 2: Decide how you want to invest in gold

• Direct Gold ETF: Here, you purchase units of the listed ETFs, through your trading account and the units are held in your Demat account. The purchase happens at the market price at which your order gets executed.

• Gold ETF Fund of Fund: Here you invest in a mutual fund scheme that invests in units of Gold ETFs, through a mutual fund platform or the fund house, and may utilize a SIP, if the scheme has it.

Step 3: Shortlist Gold ETF schemes

Do not select a scheme just because its unit price is lower, as a lower unit price doesn’t mean a cheaper scheme. Instead compare the following:

• Expense ratio: the recurring annual cost charged by the scheme and reflected in the NAV.

• Tracking error and difference: the extent to which the scheme’s returns are aligned with the returns of gold.

• Trading volume and bid-ask spread: greater trading volume and smaller spread, results in a lower average trading cost, but that doesn’t ensure best execution.

• Other costs: brokerage, exchange and other charges, and depository charges, as per your account tariff.

Costs are different across brokers and schemes, so the latest factsheet and broker tariff will be more informative. See our article on gold and silver ETFs in India for examples, but treat any prices or rankings as a snapshot. Current gold ETF quotes are available on theNSE ETF market-data page.

Step 4: Find the correct Gold ETF on your trading platform

Check the names of the schemes and exchanges and use those to do a search. Gold ETFs offered by different fund houses can have similar names. So it's important to verify the full name, symbol and listing. Be sure not to select a Gold FoF or a gold company share or other product.

Step 5: Check the live price and order book

Check the bid, ask prices and available quantity. Review recent trades and the price at which trades have taken place. The price at which the last trade occurred is not necessarily the price at which your order will execute. For example, the last traded price may be ₹60, but the best ask may be ₹60.20 and best bid may be ₹59.90. In this case, a market order will execute at a price in between ₹59.90 and ₹60.20.

Step 6: Enter the quantity and place your buy order

Select the buy option and enter the number of units. ETFs and other exchange traded units are generally purchased in whole units. Check the estimated order value and charges, and then select the order type.

• Market order: A market order buys at the best available price and hence the final price may vary.

• Limit order: A limit order sets the maximum price you are willing to pay and may remain pending or not executed.

Step 7: Check order status and verify your holdings

View the order book to see if the order is pending, partially filled, fully filled, rejected or canceled. If partially filled, see the quantity that was filled and the average price. During the settlement process, confirm that the scheme and the quantity have been allotted in the demat account and keep the contract note. If units are not allotted, contact the broker or depository participant and provide the order details.

Gold ETF vs Gold ETF Fund of Fund: What Is the Difference?

A common beginner mistake is treating a Gold ETF and a Gold ETF FoF as the same product. Both give exposure to gold prices, but their structure and purchase process differ.

A FoF adds another layer of fund structure and expenses, so review the scheme documents and total costs rather than a single expense ratio. The AMFI investor education material explains ETFs and Fund of Funds. Readers who want to compare fund structures can also review ETF investing resources.

If you are comparing gold exposure with other commodity products, remember that exchange-traded Gold ETFs and commodity derivatives are different instruments with different risks.Commodity investment category page explains that distinction.

Risks and Limitations of Gold ETFs

While ETFs provide exposure to gold, there is no guarantee of profit, and their value can go down if gold price falls.

• Gold price risk: Gold ETFs are exposed to both domestic and international price risks.

• Currency impact: Internationally, gold prices are in US Dollars. So rupee-dollar movements can impact domestic prices.

• Tracking risk: expenses, cash holdings, and other factors can result in performance deviation from reference prices..

• Liquidity risk: some units get traded less and have wider spreads.

• Market-price difference: exchange price can be in premium or discount from the NAV and indicative price.

• Concentration risk: gold exposure is not a portfolio which is diversified across different asset classes.

Gold ETFs do not pay interest or dividends simply for holding units. For official investor education, see SEBI, and read the scheme information document and factsheet before investing.

Gold ETFs do not pay dividends or interest for holding units. Read the scheme information document, and factsheet, and SEBI's official pages for investor education before investing.

Conclusion: How to Buy Gold ETF in India

The process of investing in Gold ETFs in India is simple and involves all the steps that are required for trading. You need to have an active Demat and trading account. Identify the Gold ETF scheme you want to invest in. Compare costs and liquidity of the scheme and verify the correct symbol. Place your order and wait for settlement to confirm allotted units. Now compare costs, pricing and process of a Gold ETF Fund of Funds (FoF). Each has its own unique advantages and disadvantages. For understanding of available fund structures and costs readers can refer ETF product information and educational material.

Always read the scheme documents and decide the quantity and order type before placing your order.

Maintain your contract notes and keep your transaction records safe as you may need them to ascertain your holding at the time of filing your tax return.

Readers looking for more general market education can explore the investing advisor resources on InvestEdge360.