Process for investing in GETF
One needs a trading account with an NSE broker and a demat account as GETF can be bought and sold only in the demat form.
The steps are:
• Open a demat account with a depository participant with NSDL, or CDSL
• Hire a broker, or open an electronic trading account
• Buy gold ETF listed at the exchange online, or through your broker
• Minimum number of units of GETF that you can buy is one• Check demat account to ensure receipt of units and the rate at which they were bought
• When you want to sell, enter a sell order online, or instruct your broker
• Check demat account and bank account to ensure money has come in
How does GETF work?
A fund house offering a GETF appoints authorized participants who initially buy the units of a GETF from the mutual fund by exchanging actual pure gold for the units of GETF. These authorized participants engage in secondary market trading of gold. The underlying gold is kept with the fund house in the form of physical gold or gold receipts, which gives it the right of ownership. Authorized participants can go back to the mutual fund house to redeem the GETF units and can demand equivalent value of actual pure gold at any time. ETF units can be bought through a stock exchange, where investors can buy or sell gold units on payment, for quantities as specified by the mutual fund in its respective offer document.
When investors buy and sell gold ETF units on the stock exchange, no new units are created. New ETF units can be only be created directly with the fund house, when authorized participants appointed by the ETF exchange the underlying security (in this case, gold) with gold ETF units, from the MF. These fresh units so created leads to a surge in demand for physical gold.
Read following:
- Can you do a SIP in gold ETF?
- Investing in gold through mutual funds
- Why gold is a good buy in the current situation ?
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