Investing in gold has long been a popular choice for wealth preservation and financial security. The Zerodha Gold ETF provides a modern, convenient, and cost-effective approach to gold investment by tracking the domestic price of physical gold. This comprehensive guide delves into the key aspects of Zerodha Gold ETF, from its investment structure and objectives to the advantages and risks involved.
Zerodha Gold ETF is ideal for:
- Long-term capital appreciation: This ETF offers investors a way to benefit from potential gold price increases over the long term.
- Diversification: It allows investors to add a tangible asset to their portfolio, balancing out traditional stocks and bonds.
- Convenience: As a demat-traded ETF, buying and selling gold becomes easy, accessible, and eliminates the need for physical storage or insurance.
- Transparency: As a listed ETF, Zerodha discloses its Net Asset Value (NAV) and performance on its website, providing transparency to investors.
Key Features of Zerodha Gold ETF
- Structure and Benchmark: The Zerodha Gold ETF follows the domestic price of physical gold as its benchmark, with prices derived from international market references like the London Bullion Market Association (LBMA).
- Asset Allocation:
- 95-100% invested in physical gold and related gold instruments.
- Up to 5% may be allocated in money market instruments for liquidity purposes.
- Liquidity: The ETF is listed on NSE and BSE, enabling investors to buy or sell units during trading hours. Zerodha also collaborates with market makers to ensure liquidity.
- NAV and Transparency: The NAV of Zerodha Gold ETF is published daily on its website, giving investors clear and regular updates on their investment’s value.
Expense and Cost Structure
Zerodha Gold ETF maintains a low-cost structure with a maximum expense ratio of up to 1% per annum. Here’s a breakdown of the associated costs:
- Annual Recurring Expenses: Up to 1% of the fund’s net assets is charged for managing the ETF.
- Other Costs: This can include trustee fees, custodian fees, and costs for investor communication, marketing, and transaction brokerage.
Advantages of Zerodha Gold ETF
1. Cost-Effective Gold Investment
By investing in an ETF instead of buying physical gold, investors save on additional costs associated with storage, insurance, and making charges on gold bullion.
2. Highly Liquid
With listings on major stock exchanges, Zerodha Gold ETF provides high liquidity, allowing investors to buy or sell their holdings as easily as any other stock.
3. Transparent NAV Disclosure
The NAV for Zerodha Gold ETF is calculated daily, and Zerodha discloses it on their website, allowing investors to stay informed on their investment’s performance.
4. No Lock-in Period
Unlike some traditional gold investments, Zerodha Gold ETF does not come with a lock-in period, making it an attractive option for investors looking for flexibility.
Risks Associated with Zerodha Gold ETF
While Zerodha Gold ETF provides a modern way to invest in gold, it’s essential to understand the associated risks:
- Market Risk: Like any investment, Zerodha Gold ETF is subject to market fluctuations, and the value of gold can go up or down.
- Liquidity Risk: In extreme market conditions, trading may be halted, making it challenging to buy or sell units.
- Credit Risk: If Zerodha places gold deposits in gold schemes like the Gold Monetisation Scheme, there’s a credit risk involved if the issuing bank cannot return the gold.
- Physical Gold Storage and Custody Risks: There’s a small risk associated with the storage and handling of physical gold, despite Zerodha’s strict adherence to best practices in gold custody.
Zerodha Gold ETF Differ from Other Gold Investment Options
- Gold ETFs vs. Physical Gold
- ETFs are stored securely and do not require physical handling or storage by the investor, while physical gold comes with the need for secure storage and possible insurance.
- Gold ETFs vs. Gold Mutual Funds
- Gold ETFs track gold prices directly, whereas gold mutual funds invest in gold stocks, which may not directly correlate to gold prices.
- Gold ETFs vs. Sovereign Gold Bonds (SGBs)
- SGBs offer a fixed interest rate but come with a lock-in period, making them less liquid compared to gold ETFs, which can be traded at any time during market hours.
Asset Allocation
| Instruments | Indicative Allocations (% of Total Assets) |
| Minimum | Maximum | |
|---|---|---|
| Physical Gold & Gold related instruments as may be specified by SEBI* | 95% | 100% |
| Debt and Money Market Instruments, cash and cash equivalents | 0% | 5% |
The Scheme Invest
The corpus of the scheme will be invested in Gold and Gold related instruments, debt, money market
instruments and other permitted instruments, which will include but not limited to:
1) Gold Bullion:
- Gold Bullion of 99.5% purity or higher
- Gold Related Instruments
2) Debt and Money Market Instruments:
- Tri-party repo (TREPS)
- Certificate of Deposit (CD) of scheduled commercial banks and development financial Institutions
- Commercial Paper (CP)
- Treasury Bill (T-Bill)
- Repo
- Securities created and issued by the Central and State Governments
- Non-convertible debentures and bonds
- Floating rate debt instruments
- Investment in Short Term Deposits
Setting Up an Emergency Fund with Gold Investments
A unique approach to financial planning involves setting aside a portion of assets in a secure investment like gold. Zerodha Gold ETF, given its liquidity and low-cost structure, can serve as a valuable component of an emergency fund:
- Gold as a Hedge Against Inflation: Gold prices tend to rise with inflation, making it a valuable hedge for preserving purchasing power.
- Easy Access to Cash: Since Zerodha Gold ETF units can be traded on NSE and BSE, it allows investors to liquidate their gold holdings quickly in case of emergencies.
- Balanced Portfolio Addition: Adding gold to a portfolio creates a balanced approach by spreading investments across different asset classes
Final Thoughts
The Zerodha Gold ETF offers a modern, efficient way to invest in gold, combining the convenience of a demat-traded ETF with the benefits of physical gold. This ETF can be an excellent choice for investors seeking a diversified portfolio with exposure to gold. While it has its own risks, Zerodha Gold ETF’s low-cost structure, transparency, and ease of trading make it a strong candidate for anyone interested in safeguarding their wealth.
Note: To get the most accurate and up-to-date information, you may want to consult with a financial advisor or directly check the Zerodha website or other reliable financial platforms.
