No, with a gold ETF, you don't own physical gold, but rather you buy a publicly traded debt security denominated in gold. Gold ETFs are publicly traded and can be bought and sold directly with a Demat account. Gold ETFs back their assets by purchasing real physical gold with a purity of 99.5%. This physical gold is stored in vaults in the custodian bank, which is typically one of the best Gold IRA custodians, and is valued periodically, in accordance with the guidelines of the Securities and Exchange Board of India (Sebi).A gold ETF is an exchange-traded fund (ETF) that aims to track the national physical price of gold. It is a convenient way to store physical gold, as it can be bought and sold on the stock market.
They are passive investment instruments that are based on gold prices and invest in gold bars. However, the fund itself maintains gold-backed gold derivative contracts. So, if you invest in a gold ETF, you won't actually own any gold. For example, if an investor wants exposure to the gold mining industry, owning a gold ETF may be an investment strategy that suits their portfolio.
The size of the creation unit is the minimum amount of gold or gold ETF units that an investor can buy or sell directly in a fund house. While ETFs generally have many tax benefits, the IRS can classify gold as a collector's item, which can have tax consequences. While the fund's assets are backed by the commodity, the intention is not for an investor to own gold. In short, gold ETFs are units that represent physical gold and that can be on paper or in dematerialized form.
ETFs backed by gold and similar products represent an important part of the gold market, and institutional and individual investors use them to implement many of their investment strategies. In addition, due to their unique structure and creation mechanism, ETFs have much lower expenses compared to physical investments in gold. AMC also allows you to exchange units of gold ETFs in the form of physical gold the size of a “creation unit”, if you have the equivalent of 1 kg of gold in ETFs or in multiples of them. The investor will need to show the original KYC documents at the time of physical delivery in the form of gold bars.
Once you have a better understanding of gold ETFs, you'll probably find it easier to start investing in them. Gold exchange-traded funds (ETFs) expose traders to movements in the price of gold without having to buy the underlying physical asset. However, even without this, gold ETFs are a good way to invest in gold, as investors don't have to worry about the safety and purity of the precious metal. While there are other gold mining stocks and individual precious metal indices, a gold ETF may be a simpler or more diverse way to invest in the gold mining industry.
Since you invest in an ETF backed by physical gold, it's better to use ETFs as a tool to benefit from the price of gold than to access physical gold. Gold ETF trading takes place through a dematerialized account (Demat) and a broker, making it an extremely convenient way to invest electronically in gold. A gold ETF provides investors with an opportunity to expose themselves to gold's performance or price movements.