Gold BeES, or Gold Benchmark Exchange Traded Schemes, are open-ended Exchange-Traded Funds (ETFs) designed to mirror the price movements of physical gold. Each unit of Gold BeES represents 0.01 gram of gold in a dematerialised or paper form, backed by physical gold bullions with 99.5% purity.
As ETFs, they are traded on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Investors can buy or sell these schemes in the cash segment of both exchanges, transacting continuously at prevailing market prices.
This article will take you through Gold BeES, its functioning as well as pros and cons. We will also look at the types of Gold BeES in India and how they are taxed. We will also discuss some frequently asked questions which may arise in your mind to evaluate whether gold BeES is a good investment option. If you are an experienced investor or a relatively new entrant looking to try your hand at different kinds of investments, this Gold BeES guide has everything covered for you.
What are gold BeES?
Gold BeES are part of ETFs and each unit in this represents the value of gold. In a way, investing in Gold BeES is equivalent to gold prices. An Exchange Traded Fund (ETF) is launched by an asset management company (AMC) at the stock exchange which can be traded the same as a single equity (stock). This makes Gold BeES a cost-effective and convenient way for investors to be invested in gold as an asset class without requiring them to buy or store physical gold. This unique product provides advantages of both gold and equity investments combined.
How do gold BeES work?
Gold BeES work by tracking gold prices in the market as they move up or come down. A fund manager buys physical gold in the form of bars and coins (bullion) as a part of the assets of the ETF. The units of the Gold BeES represent specific quantities of gold, usually 1 gram each. Since the price of gold keeps varying in daily stock turnover, Gold BeES units have market risk. The units can be bought and sold on the exchange just like shares by investors. ETF Gold BeES is priced equivalent to the spot price of gold, minus management and trading costs. It makes Gold BeES a more transparent and efficient way to own gold without owning it physically.
Characteristics of Gold BeES
- Fractional ownership: Gold BeES offer investors a unique advantage by allowing for ownership of a fraction of a gold bar or coin. Each unit represents just 0.01 grams of gold, making it accessible to those with smaller investment budgets.
- High-purity backing: The value of Gold BeES is directly linked to the spot price of gold due to their backing by physical gold bullion with a purity of 99.5%. This ensures that investors benefit from the market value of gold.
- Liquidity and accessibility: Gold BeES are listed on prominent stock exchanges like the BSE and NSE, providing investors with high liquidity. This enables easy buying and selling of units, making gold investment more convenient.
Benefits of investing in gold BeES
Buying Gold BeES has its several advantages, like high liquidity, cost-effectiveness and flexibility, the ability to buy in smaller quantities and their use as a trading margin. All of these benefits position Gold BeES as an attractive option for investors who are interested in diversifying their portfolios with gold while not having to worry about holding physical gold.
1. High liquidity
Gold BeES are very liquid investments, which allow investors to buy or sell the units anytime during stock trading hours. ETF gold BeES ensures that investors have an opportunity to react quickly in response to market changes, with physical gold taking significant time and effort to sell. The liquidity of Gold BeES means investors have little delay in buying or selling thus reducing the investment risk. This makes them ideal for both short-term as well as long-term investment strategies.
2. Cost effective
Gold BeES are more economical in comparison to actual gold investing. Buying physical gold comes with its own added costs like making charges, storage fees and insurance. Gold BeES, on the other hand, have lesser expense ratios and don’t involve storage or security costs. This cost efficiency makes Gold BeES a more appealing option for investors looking to get exposure to trading in gold without incurring the inherent costs of securing physical gold.
3. Flexible and secure transactions
Gold BeES enables investors to securely transact in a protected and safe environment. You need to have a demat account for Gold BeES and the transactions fall under stock exchange regulations, which makes it transparent and secure. Investors need not worry about theft, purity or quality of the gold as the AMC managing the ETF takes responsibility for the upkeep and maintenance of the gold reserves.
4. Ability to purchase in small quantities
Since the minimum investment requirement in physical gold is quite high, Gold ETFs are an alternative through which you can invest even in small amounts of just one unit. Gold BeES makes it easier for investors as they can even invest with small fractions of gold, which means investors can begin with small amounts. For those investors who want to make incremental investments in gold over a period of time, this proves to be particularly beneficial.
5. Serves as a trading margin
With the ability to be used as collateral for trading margins in the derivatives market, Gold BeES allows investors to leverage their holdings of Gold BeES to secure more investments or trading positions without liquidating their gold exposure. For traders who want to use existing assets to add more positions in other financial instruments, this provides a big advantage.
Disadvantages of investing in Gold BeES
However, along with the benefits, there are some disadvantages of investing in Gold BeES as well. Liquidity risk, price volatility, market risk, market inefficiencies and counterparty risk. Considering these risks is crucial for an investor before investing in ETF gold BeES.
1. Liquidity risk
Gold BeES are usually considered liquid, but they may be less so in a given market fall or low trading volume periods. Investors may have to consider selling on their returns at times, otherwise, they might find it difficult to sell their units in periods of market downturns.
2. Price volatility
Since gold prices depend on several factors like prevailing economic conditions, geopolitical tensions, currency fluctuations and changes in demand-supply, this makes it a volatile investment proposition. These swings affect the price of Gold BeES and will also reflect through an investor’s portfolio, impacting net worth. Investors should be cautioned that there is risk to their investment, and they may lose value.
3. Market risk
Like every mutual fund, in the case of Gold BeES value grows with the market and declines when conditions change. Gold prices and hence the value of ETF gold BeES are also influenced by factors such as changes in interest rates, inflation levels or vulnerabilities and changes in investor sentiment. They also represent market risks, so investors should be prepared to potentially face some losses.
4. Market inefficiencies
In certain scenarios, market inefficiencies can make the price of Gold BeES deviate from gold spot prices. This may be due to factors like management fees, transaction costs or there being fluctuations in supply and demand in the market. However, one must bear in mind that the price of Gold BeES may not always accurately reflect gold prices, at least in the short term.
5. Counterparty risk
If a fund manager who is responsible for managing costs within an ETF fails to deliver, this could lead to an investor potentially suffering some loss. This is called counterparty risk. Although the risk is quite low, it does count as a factor which investors should consider at the time of investing in Gold BEES.
List of Gold BeES available in India
- Nippon India ETF Gold BeES
- HDFC Gold ETF
- Kotak Gold ETF
- ICICI Prudential Gold ETF
- Aditya Birla Sun Life Gold ETF
Taxation of Gold BeES
Gold BeES is taxed at a rate similar to that of debt mutual funds in India. Prior to buying Gold BeES, remember if the investor sells within 12 months of purchase then any returns will be liable for short-term capital gains (STCG) and will be taxed as per applicable income tax slab. The gains on Gold BeES are long-term if they have been held for more than 12 months and currently, the LTCG tax rate stands at 12.5% without any indexation benefits, as per the new taxation regime, introduced as of 2024. It is to be considered that the holding period for Gold BeES has been reduced from 36 months to 12 months. Any holding of more than 12 months qualifies it as a LTCG taxable asset.
How to invest in Gold BeES?
Follow these steps to invest in Gold BeES:
- Choose a Broker: Visit the website or app of your preferred brokerage platform.
- Open a Demat and Trading Account: Complete the account opening process by submitting the required documents. Don’t forget to link your bank account to your Demat account.
- Select Gold BeES and Place Your Order: Choose the Gold BeES you want to invest in and place an order for the desired number of units.
- Confirm Your Transaction: After placing the order, check your phone or email for confirmation. Please note, a brokerage fee will be charged on your transaction.
Points to note when buying into Gold BeES
- Consider the fund's scale, as indicated by its assets under management, and its trading activity, as measured by average daily turnover.
- Evaluate the impact cost to assess the instrument's liquidity, or its ability to be bought or sold without significantly affecting its price.
- The fund's tracking error relative to the benchmark gold should be minimised to ensure its performance aligns closely with the underlying asset.
Gold Bees vs Gold ETF
This table summarises the key comparisons between Gold BeES and other gold ETFs:
Aspect |
Gold BeES vs. Gold ETFs |
Cost |
Gold ETFs are generally more affordable compared to purchasing physical gold. |
Liquidity |
Gold ETFs offer better liquidity than physical gold, as they can be easily bought and sold on exchanges. |
Security |
Gold ETFs are typically considered safer than physical gold. |
Investment Size |
Gold ETFs allow investment with amounts as low as Rs 20, unlike physical gold which requires a larger investment. |
Impact Cost |
As of July 2024, Gold BeES has an impact cost of 0.02%, which is lower compared to other gold ETFs. |
Size and Longevity |
Nippon India ETF Gold BeES, also known as GOLDBEES, is one of India’s largest and oldest gold ETFs. |
Tracking |
Gold ETFs track the price movements of physical gold. |
Ways of investing in gold
Gold has been a valuable asset for centuries and continues to be a popular investment choice. There are several ways to invest in gold, each offering distinct advantages and characteristics. Here's an overview of the most common methods:
- Physical Gold: Investing in physical gold typically involves purchasing items such as gold coins, bars, or jewelry. This method provides tangible ownership, which is appealing for many investors who prefer to hold their assets physically. However, owning physical gold also means that investors must account for storage and security costs, such as a safe deposit box or home storage, along with potential premiums over the market price.
- Electronic Gold (E-Gold): E-Gold is a digital form of gold, where investors hold gold in a dematerialised form rather than physical bars or coins. It is held in electronic accounts and traded like shares. E-Gold allows for easier buying, selling, and transferring of gold, offering a more convenient method of investing compared to physical gold.
- Gold BeES ETF (Gold Exchange Traded Fund): Gold BeES is a type of gold-backed exchange-traded fund (ETF) that allows investors to buy and sell gold on the stock market. Each unit of Gold BeES is backed by physical gold, but the investor does not hold the physical asset. This method combines the advantages of both gold and the stock market by providing liquidity and ease of access.
- Sovereign Gold Bonds (SGBs): Sovereign Gold Bonds are government securities issued by the Reserve Bank of India (RBI) on behalf of the government. These bonds offer investors a fixed interest rate along with the benefit of gold price appreciation. The bonds are issued in denominations of gold grams and are available for purchase during specific government-issued offers.
- Gold Funds: Gold funds are mutual funds that invest in gold-related assets, including physical gold, gold futures, and shares of gold mining companies. These funds provide investors with exposure to gold without directly buying physical gold or gold ETFs. They are ideal for those who prefer professional management and diversified exposure to the gold market.
Conclusion
Gold BeES are an effective and hassle-free tool to invest in gold, without actually buying gold physically. Given its high liquidity, low cost and portfolio diversification benefits, it is an attractive alternative mode of investment in gold for investors. But at the same time, investors should be informed about risks attached to investing in Gold BeES, which can include liquidity risk, price volatility & counterparty risk.
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