Gold BeES Explained: How They Work And Why Invest In Them
In India, gold has been a symbol of wealth and security for ages. However, investing in gold was generally confined to ornaments or coins. Although these options provided security, they also had several drawbacks, such as storage difficulties, safety complications, extra making charges, and even liquidity difficulties.
How would you feel if you got to know there is a way to invest in gold while avoiding such complexities? Sounds convenient, right? Well, this is exactly what Gold BeES is for. It assists in the online gold investment in India.
If you have doubts about investing in digital gold, you must not know that in October 2024, gold-backed ETFs saw an impressive inflow of $4.3 billion1. This massive figure shows an increase in trust in online gold investment. So, why lag behind? But before investing in Gold BeES, read this article till the end to learn about them in detail.
What Are Gold BeES?
Gold BeES is an abbreviation for Gold Benchmark Exchange-Traded Scheme. This is one of the most popular ways by which you can invest in gold without having to keep it with you physically. These are open-ended Exchange-Traded Funds (ETFs) that replicate the price movements of physical gold.
Open-ended Exchange-Traded Funds (ETFs) trade actually on stock exchanges. It facilitates the buying and selling of shares and also permits transactions by investors at all times during market hours. It further creates shares that you can redeem at any moment to retain liquidity and align them with the prices of underlying assets.
How Do Gold BeES Work?
When you invest in Gold BeEs, you buy units representing a specific quantity of gold, usually equivalent to one gram. Dematerialised gold is securely stored, with each unit being carefully safeguarded in a secure and controlled environment. These are listed and traded on stock exchanges so that you may buy and sell them conveniently.
The price of Gold BeES replicates the price of gold in the market, thus providing you an opportunity to profit from fluctuations in gold prices. Demat accounts complete the transaction without errors or cumbersome procedures.
For example, if the market price of gold is INR 5,000 per gram, and you decide to invest INR 50,000. Each unit of Gold BeES represents one gram of gold, so with INR 50,000, you can buy 10 units (INR 50,000 /INR 5,000).
Now, if the price of gold increases to INR 5,500 per gram, the value of each Gold BeES unit will rise to ?5,500 as well. Your investment is now worth INR 55,000 (10 units × INR 5,500), giving you a profit of INR 5,000. Even if you deduct a small expense ratio on this profit, say 0.5%. This amounts to INR 250 on your INR 50,000 investment; you still get a net profit of INR 4,750.
Benefits Of Investing In Gold BeES
Gold BeES investment comes with many benefits, which is also why it is becoming one of investors' favourite choices. Some of the Gold BeES investment benefits are listed as follows:
High Liquidity
If you own Gold BeES, then managing your investments becomes easy. You can trade them on stock exchanges like NSE and BSE, which allows you to buy or sell them at any time without bothering to find an ideal buyer or waiting for the right price. It does not have the liquidity issues like physical gold, which is much harder to trade.
Cost-Effective
Unlike physical gold, you do not have to worry about where to store your assets or pay for costly safekeeping options. This makes Gold BeES much more convenient for investors who want to avoid all the hassles of dealing with physical gold. Apart from eliminating storage-related expenses, Gold BeES is generally more affordable due to its low expense ratios.
Flexible And Secure Transactions
With Gold BeES, you can invest securely and conveniently in gold without the hassles of various risks associated with actually having physical gold. These risks can be theft, damage, impurity, or loss. In fact, as the investment is maintained electronically, trading becomes simple and secure. Moreover, each unit of Gold BeES stands for physical gold with 99.5%2 purity, which guarantees the highest quality.
Ability To Purchase In Small Quantities
Gold BeES allows you to invest in gold as per your investment capacity, with the typical unit amounting to 0.01 grams of gold. This flexibility means being accessible to investors with different financial capabilities. For example, you can invest just INR 5,000 and buy pieces equivalent to about 7.7 grams worth of gold, slowly building your portfolio. Such low affordability makes Gold BeES an excellent option for new and seasoned investors.
Serves As A Trading Margin
Gold BeES can be used as collateral for margin trading, giving added flexibility to active investors. This enables you to trade in the stock market while also investing in gold. Under SEBI regulations, equity ETFs such as Gold beES are now considered eligible for margin trading. This makes them a very smart option for investors seeking versatile choices in this dynamic market.
Disadvantages Of Investing In Gold BeES
Though Gold BeES has many advantages, it also has certain disadvantages. Thus, it is important for you to be aware of them before investing. Some of these disadvantages are:
Liquidity Risk
You may have to face a situation where there is no buyer or seller at the price you wish, as the volumes traded have been very low. This especially happens during market downturns. For example, selling a high holding when the market is down may result in having to settle for a lower price, or it may take a bit longer to trade. This becomes problematic if you are in urgent need of funds.
Price Volatility
Gold prices fluctuate as a result of international factors like economic trends or changes in politics and currency. Therefore, since Gold BeES tracks the prices of gold, they tend to be random. For example, in the event of a global recession, gold prices would shoot up when investors rush to this preferred safe investment. However, those prices fall as quickly as they rise when the economy stabilises again, thereby affecting the worth of your gold investment in India.
Market Inefficiencies
Sometimes, due to Market inefficiencies, including low trading volumes, supply-demand imbalances, etc., the price of Gold BeEs may fluctuate from the price of real gold. Due to this difference, you might be required to buy the Gold BeEs at a higher price than the real value of gold. Similarly, you might even have to sell at a lower price than the real price of gold.
Counterparty Risk
Investing in Gold BeEs is partially dependent on the trustworthiness of your fund manager, who is responsible for making all the crucial investment decisions. These decisions they make can significantly affect your investment. Thus, if your fund manager mismanages your assets or fails to track the gold prices efficiently, then it could directly impact your investment. This could further incur huge losses.
Taxation Of Gold BeES
It is essential that you learn about Gold BeES Taxation before investing in them. Just like any other form of gold and investment, Gold BeES in India has some specific tax policies as well. Read on to learn about various taxation policies applicable to Gold BeES:
Short-Term Capital Gains Tax (STCG)
Sales of Gold BeES within 3 years of purchase are classified as short-term capital gains (STCG) and shall be taxed at a flat rate of 15% without regard to the income tax slab of the earner.
Long-Term Capital Gains Tax (LTCG)
Gold BeES held for three years or more qualify for long-term capital gains (LTCG) treatment. The tax on LTCG is levied at 20% with the added benefit of indexation, which reduces the taxable amount by adjustment on inflation.
Tax On The Dividends
Gold BeES may declare dividends from time to time, which are to be taxed based on its income tax slab. However, the dividends for Gold ETFs are rare as compared to most other investments.
Gold BeES Available In India
If you are wondering which Gold BeEs are available in India, check out the following list to learn about some of them:
S. No. | Gold BeES in India | Selection Criteria |
1 | Quantum Gold Fund | It is known for holding a low expense ratio, meaning it is rather inexpensive for a long-term investment. |
2 | Aditya Birla Sun Life Gold ETF | It features high liquidity, which allows one to quickly buy and sell at competitive prices. |
3 | UTI Gold ETF | Comes with a highly diversified portfolio while providing stable returns by closely replicating the movements of gold prices. |
4 | Invesco India Gold ETF | Primarily focuses on delivering returns through minimal tracking errors with consistent performance. |
5 | Kotak Gold ETF | Easy access with the reliability of Kotak's robust financial services. |
How To Invest In Gold BeES
You can easily invest in Gold BeES, as it is available through stock exchanges. However, if you are doing it for the first time, just follow the steps below:
Step 1: Start by opening a demat or trading account with an authorised stockbroker. These accounts would keep the number of Gold BeES units in the electronic format.
Step 2: Once you are registered, choose from available Gold BeES schemes based on your investment goals. The most sought-after choices include Nippon India Gold BeES and SBI Gold, both of which come with the backing of 99.5% pure gold.
Step 3: Lastly, transfer the amount you want to invest into your trading account. This is the fund that would be used to purchase the Gold BeES units.
Conclusion
Gold BeES has emerged as a clear and simple investment avenue that combines the ageless metallic value of gold with the need for accessible modernity. Due to its flexibility, reasonable price, and long-term tax benefits, including it in your portfolio can be ideal for diversification across assets.
However, if you are yet to start your investment journey, sign up with Grip today! It is a user-friendly investment platform that allows you to invest your funds in high-yield alternate investment opportunities.
Frequently Asked Questions
Q1. Can I use Gold BeES as collateral for loans?
Yes, you can take loans against gold BeES. Gold BeES are traded on the stock exchange, and since they are backed by physical gold, financial institutions accept them as security. This is a very interesting way to leverage your gold investment without having to sell it.
Q2. Is there a minimum investment amount for Gold BeES?
For Gold BeES, the minimum investment amount is normally one unit, which usually comprises one gram of gold. This gives it much wider access to investors because it allows one to invest even with just an amount as little as ?5,000, depending on the price of precious metals.
Q3. Do Gold BeES have a lock-in period?
No, they do not have a lock-in period. During market hours, Gold BeES can be bought and sold at any time. This liquid nature would appeal to a person looking for flexible gold investment without the requirement to abide by long-term commitments.
References:
1. Reuters: <https://www.reuters.com/markets/commodities/gold-etf-demand-turns-positive-year-to-date-says-wgc-2024-11-07/?>
2. Business Today <https://www.businesstoday.in/personal-finance/investment/story/nippon-india-etf-gold-bees-ranks-10th-worldwide-in-ytd-fund-flows-check-details-before-investment-445759-2024-09-13>
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