Gold ETF | Advantages & Disadvantages

Advantages of Gold ETF:

• First, Gold ETFs allow you to invest in gold even if you have a small investible surplus. Instead of waiting until you accumulate enough funds to buy a 50 gm gold bar, you can make an investments in gold ETFs with an outlay of just Rs 10,000, to start with.

• Second, You can also gradually build your exposures by buying additional units as and when you can afford them. Second, you can phase out your investments in a Gold ETF over a period of several months or years, so that you do not invest lump sum at a single price.

• Third, when you take the ETF route, you can invest in gold without worrying about the purity issues that usually dog jewelery purchases.

• Finally, because you can liquidate your ETF units at NAV-based prices through the stock market, they may offer better liquidity at prices closer to the market than gold bars or jewelery.

Disadvantages of Gold ETF:

• One, returns on Gold ETFs may be lower than those on physical gold by virtue of management fees, transaction costs and other operational expenses levied by the fund house on the fund's NAV.

• Second, if the ETF units are not actively traded in the stock market, you may not be in a position to exit your holdings at the time or price of your choice.

Solutions:

• However, these risks appear unlikely to play out in practice. Competition between different ETF products may ensure that these products generate returns that are pretty close to those generated by physical gold.

• The problems associated with liquidity may be sorted out if the idea of Gold ETFs really catches on with investors.

Exchange Traded Funds | Advantages & Disadvantages

Exchange traded funds (ETFs) are a popular among investors nowadays.
These investment vehicles are similar to index funds, except they are traded as stocks on the stock market.

Here are advantages and disadvantages of investing in ETFs

Advantages

1. Convenience
Investing in ETFs are as easy as investing in stocks. You just need to buy one as you would buy any regular stock.

2. Low fees
Like index fund, ETFs have low fees. You can expect the management fee to be about .1% for S&P 500 trackers like IVV and SPY.

3. Tax efficient
There are no unexpected capital gains/losses when you purchase an ETF. Sell when tax-wise it makes the most sense to you.

Disadvantages

1. Convenience
The ease of buying/selling an ETF means you might sell an ETF when you later believed you should have held on. Of course, solid investment discipline will avoid this disadvantage.

2. Market spread
If you are buying a rare ETF, the buy/ask spread might be somewhat significant. This can be avoided if you invest in the major ETFs.

3. Index fund disadvantages
Since you gain the advantages of an index fund (like low fees), you also receive most of the disadvantages as well. Because an ETF blindly follows an index, it means it holds shares of stocks you might not like that happen to be in that index.