Gold ETFs and Gold Futures are two different financial products for trading in gold market. With Gold ETF, the investors can trade in the global market and earn returns on the basis of fluctuations in the gold prices. On the other hand, Gold Future is an agreement between the buyer and the seller of a specific gold amount at a specific date at a specific time. Let us understand the differences between these two investment products with regard to essential elements.
Being Popular is not equivalent to Being Perfect
Gold ETFs received wide popularity amongst all types of investors. Gold ETF offers convenient, easy and systematic way of participation in gold market. An investor is not required to undergo risks of gold storage. He is also saved from understanding complicated aspects of trading gold futures. But the investors must analyze both of these financial products in light of the investing circumstances. Gold Futures can also prove to be a better alternative for them.
Tax can tax your profit levels
The investor’s Gold ETFs is not in the form of collectible coins. This gold investment is also not done for numismatic value. Hence, investment in Gold ETFs is treated as collectible and is subject to relatively higher amount of capital gains tax. This is definitely problem for the investor. Yes, every problem has a solution! The investors can avoid this tax by exiting their positions frequently before a year. But it can affect the profit making ability resulting out of multi-year investments. Think twice!
In gold futures, the tax implication is segregated into short-term and long-term capital gains.
Market Risk Intervention
The Gold ETFs are faced with a number of company risks. These risks are not related with the fluctuations in the gold prices but the investor has to abide by the actions. Lets us take a simple example. The gold ETFs must be liquidated if net asset value or the NAV falls below a specific level.
On the contrary, in gold futures, third parties are not allowed to take decisions for buying and selling of gold. The investor is free to buy or sell gold at his own discretion.
Money Matters!
Gold ETF challenges that a nominal amount of management fees is required to trade in the gold market. These fees are much lower than the costs incurred in purchasing, storing and insuring gold ornaments. Apart from management fees, investors in Gold ETFs have to bear sponsor fees, marketing fees, and taxes. Your investment value is diminished to a great extent. Your profits are hampered as you have to pay more.
But if you can save the management fees too, then what? Gold Futures is the answer. In Gold Futures, you do not have to pay management fees and the capital gain tax is relatively less.
Both these products have advantages and disadvantages. Understand the operation of Gold Futures carefully. You can save tax implication and management fees and earn substantial profits. Finally, the gold is in your hand!
