What is Online Trading – Meaning, Tips & Benefits

Posted by Mehul Kothari | Published on 18 Apr 2019
Image
What is Online Trading – Meaning, Tips & Benefits

Trading in the stock market has rapidly evolved in the last 30 years. From earlier offline trades done via the phone, we have moved to a trading ecosystem that is completely online.

Offline trades earlier used to involve investors calling their brokers to relay an order. After the order was confirmed, the broker would go to the stock market floor to execute the order. The stock markets operated on an open floor trading system where brokers would call out their orders and the prices and transactions would get finalized. This was also called as open outcry where brokers would use hand signals and gestures to communicate with each other. Once the order was finalized along with the price, the share certificates switched hands and also owners. This transfer of share certificates was marked in ink behind the share certificate stating the change in ownership. Once this transfer was done, funds would change hands indicating that the transaction was complete. As cumbersome as this process may sound, all stock transactions the world over followed this system till the 1980s after which stock exchanges slowly began transitioning to dematerialized shares and online trading.

What is online trading?

Online share trading is nothing but transacting, i.e., purchasing and selling shares online. This is done through the broker’s online trading system. The broker’s online trading system is registered with the stock exchange’s online share trading system and can thus be used to conduct trades. Some of the instruments that can be traded using an online trading account are:

• Equity shares
• Mutual funds
• Bonds
• Derivatives
• Commodities
• Currencies
• Any other listed funds

Online trading is a convenient way for a person to begin investing in the stock market. It is no longer necessary for your broker to find the right price match based on your orders. This process can completely be done online through the exchange’s price matching mechanisms. Instead of brokers competing to find buyers, the system operates through a matching mechanism where buy orders and sell orders are matched based on the price. The price of the instrument can be obtained from the listed price on the exchange. Online trading allows an investor the flexibility to choose the price at which he wants to sell the instrument and depending upon the order matching system, the order is fulfilled when it is matched. The fund transfer and securities transfer happens within the next two days of the date of transaction, thus making the entire process seamless.

With the introduction of online trading, India is looking at an increased participation from first time investors in the financial markets. Online trading in India is extremely easy and each broker provides videos, blogs and customer support to ensure their customers can trade on their platforms with ease.

Online trading allows the investor to set different types of orders such as:

• Market orders
• Stop loss orders
• Limit orders

These accounts allow the investor to access their holdings and make immediate decisions to enter an instrument or exit it.

Benefits of online trading:

1. Cost:
The biggest advantage of online trading is the brokerage costs. Trading using an online system is cost effective not only for the broker but also for the investor. The absence of a human element allows brokers to slash their brokerage costs, which makes it very cost effective.

2. Efficiency:
Online trading is very efficient. There is very little room for human error. An order once placed is almost always executed. Plus, your online trading account sends emails and messages on the confirmation and execution of orders.

3. Research reports:
Most brokers offer a wide range of market research reports and analysis about different market instruments. These research reports give you an insight into the share market. You can rely on these reports because you know that these are made by industry experts. Thus, a research report from a good broker is also bound to save you time that you would otherwise spend in doing research.

4. Scrip tracking:
It is possible for investors to track different shares that they’ve invested in. Online trading provides the investor a chance to track the movement in shares. It provides reports like price movements over a period of time, the different buy and sell orders currently placed in the market etc.

5. Watch lists:
Traders can put a few shares in their watch lists which provides an easy way for them to track the prices of the stocks that they intend to purchase..

6. Speed:
Using an online trading account is extremely simple. It allows a person to execute a trade in a matter of a few seconds.

How to trade online?

1. Open a demat and trading account:
The first step to trading online is to open a demat and trading account. A demat account is an online repository or record for all your investments. Whenever you make a trade, the instruments such as shares are debited or credited from your demat account. A trading account is an account that enables you to buy and sell in the stock market.

2. Learn all about the different instruments:
For novice investors or traders, it is very important to understand the different instruments and learn about how the markets work. This can help place the right trades and use the stock markets to earn a return. With many resources available online, it is easy to learn all about the market. Before you invest or trade, make sure you know where you’re investing.

3. Pick your investing strategy:
This step means to decide if you’re an investor or a trader. If you’re an investor, you are investing for the medium to long term. Traders generally focus on short-term trades which can either be intraday trades or trades over a few months. Both these strategies are vastly different so it is important to know what your strategy is for each stock or mutual fund when you invest.

4. Make your trades:
The final step to online share trading is to place the order and make the trades. Depending on your investment strategy, you can purchase or sell the shares. Remember to track your shares and exit at the right moment so you can achieve your earning targets.

Online trading meaning has evolved over the years and has made investing and intraday trading affordable and accessible to a large number of people. Considering investing online? Well, why wait? Open a demat and trading account with a leading broker like IndiaNivesh Securities Ltd.




Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

PREVIOUS STORY

Know the difference between Demat Account and Trading Account

Posted by Mehul Kothari | Published on 18 Apr 2019

If one wishes to invest or trade in the stock market, there are two types of accounts that need to be opened. These accounts are demat and trading account. These two accounts are different in their uses but both are necessary for investing in the stock market. What is trading account? In earlier times, trades used to take place between brokers who acted on behalf of their clients. These trades used to happen on an open floor and brokers used to call out the prices of their orders. When two brokers found the right price for their orders, they would transfer the share certificates and the funds and the transaction would get complete. With the digital revolution and online trading, the open outcry method for transacting has become completely obsolete. With all the stock exchanges going completely online, these manual trades by brokers has been replaced by online trading through the trading account. Read more about online share trading here. The trading account is an account used to purchase and sell – 1. Equity shares2. Equity, Debt and Hybrid mutual funds3. Bonds4. Government securities5. Derivatives6. Commodities7. Currencies8. ETFs9. Other instruments traded on the stock exchange Using a trading account to buy and sell is extremely simple. Each broker offers their own trading system through their website or mobile application. These trading systems are connected to the stock market’s proprietary online systems. This offers a price matching system. An investor or trader just has to put in his order request and when the system matches the price and quantity for the order, the order gets executed. This order matching system provides seamless execution of transactions without any human intervention. The trading account is basically a link between your demat account and the exchange’s order matching system. Once the trades get cleared at the exchange, the shares or other instruments are debited and credited from the respective demat accounts. The trading account makes it extremely simple to buy and sell any investment. Since most of the investments are listed on the exchange, price discovery is easy and transparent. All you need to do is select the instrument you want to purchase and the price, and the exchange’s order matching system will ensure the transaction goes through. Brokers charge brokerage for transactions executed through the trading account. Along with that, there are exchange fees and securities transaction tax that is levied on each transaction. What is demat account? A demat account is an electronic record or repository of the financial instruments owned by an investor or trader. It shows the different investments made, the date of purchase, the price at which it was purchased and the current market price. This account allows the investor to hold shares and securities in an online form. Physical securities held by a person can be dematerialised into their electronic form and held in the demat account. One of the primary advantage of a demat account is that your shares are safe. Shares in their physical form can get damaged or lost. But shares in your demat account are safe and you don’t need to fear losing them. A demat account, like any other account, lets you easily scan all the transactions. A demat account will show the current market value of all investments held in that account as on a particular date. It also shows whether a share is partly paid up or fully paid up, thus providing clarity to the investor. However, unlike a bank account, a demat account can have zero shares or securities and still be functional. A demat account is a very convenient way to handle all investments. Unlike earlier times where all securities were in physical form, a demat account holds everything in electronic form. This makes it very convenient to handle and operate. A demat account offers all facilities like a normal bank account such as nomination facility, joint accounts, change in name and address etc. A bank account is usually linked to a demat account, which makes it easy for dividends and interest to get credited to the investor’s account directly. Read more about a Demat account here. Trading account vs demat account The difference between trading account and demat account is simple, a demat account is an online account for storing shares and securities. A trading account is an account for purchases and sales of investments. A trading account inherently has no balance. It draws from the demat account once the purchase or sale transaction has gone through from the exchange’s side. A trading account also cannot exist in isolation. It has to be linked to a demat account from which the required shares or securities can be debited or credited. A demat account can exist without having a trading account. An investor can just invest in IPOs or Mutual Funds through a broker and hold these units in his demat account. However, to sell these units, a trading account will be needed. The difference between demat and trading account is very fine. However, it is essential to know how these two accounts operate and what their nature is. This understanding will help you open these accounts and get started with your investments. How to open a trading account: 1. Select a broker of your choice like IndiaNivesh Securities Ltd. Bear in mind that each transaction requires a certain brokerage so be sure to research about the different brokerage rates for both delivery based trades and intraday trades. 2. Check the services offered by each broker. Make sure you choose a broker who provides extensive customer support, especially if you are a beginner. A good broker who provides detailed research reports could be the difference between earning profits and earning wealth. 3. Fill in the account opening form and provide the mandatory KYC details. If you have a demat account with the same broker, the KYC details may be exempted, but that depends on the broker. Some of the KYC documents required are:a. Identity proof (Aadhar Card, Passport, Voter ID, Driving License, PAN card)b. Address proof (Aadhar Card, Passport, Voter Id, Driving License, Electricity bill, Gas bill, Telephone bill, Rental agreement, Loan agreement)You will need to submit a proof of income i.e bank statements, income tax returns, Form 16 etc. 4. You will also need to submit passport size photographs. 5. Some brokers request a verification check and witnesses while filling up the account opening form6. Once the broker processes your application, you will get details about your trading account7. You also need to link your bank account to your trading account so that funds received from a sale can be credited into the bank account. 8. Once you receive these details, you can start trading. However, before you execute any trades, you must know where you are investing and what your investment strategy is. Without knowing this, it is very easy to lose money in the stock market, especially while engaging in intraday trades which is susceptible to price fluctuations. Now that you know the difference between these accounts, why not open a demat and trading account with a reputed broker like IndiaNivesh Securities Ltd.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

read more

NEXT STORY

5 things to keep in mind while dealing in the derivatives segment

Posted by Mehul Kothari | Published on 22 Apr 2019

Do you remember the first time you got on to a cycle? Your parents fitted the bike with side wheels so that you don’t fall. They also equipped you with a helmet and safety pads to avoid any injuries. Similarly, every time you start a new venture, it is best to know the precautions you should take in the currency derivatives segment in order to avoid making mistakes. This principle applies to the derivatives market too. Here are a few precautions you need to keep in mind when you deal in a derivatives segment.1) Options before futuresIn a futures contract of a derivative segment, you are obliged to follow through with a trade on a designated date and a specific price. For example, you may enter a futures contract to buy 100 shares of stock X at Rs 50 per share after three months. If the price of the share goes beyond Rs 50, you stand to benefit but if it lingers below Rs 50, you would be making a loss.But in an options contract, you can cancel the contract. In other words, you have the right to buy the stock but not the obligation. Your risk is limited to the amount of money you pay to buy the option. That’s why, if you are a novice investor, it may be better to start with options before moving on to futures trading. 2) Avoid illiquid optionsIn the derivatives segment in stock market, liquidity means that there are active buyers and sellers of a stock at all times. Generally, individual stocks are more liquid than options. This is because traders buy and sell the same stock in the market. But in case of options, there are multiple contracts available in a derivatives segment. You can choose different options with different time limits and strike prices. As a result, a few options can be illiquid as well because there may be little to no trading going on. When this happens, the spread between the bid price (how much an investor is ready to pay) and the ask price (how much an investor is ready to sell for) can be huge. When you choose an illiquid option, you may either get an unfavourable price when closing a position or may have to hold the option all the way until it expires. 3) Don’t trade without knowing the associated risksA number of factors can affect your position in the derivatives segment in market when you undertake a future or an option contract. International price movements, macro-economic factors, changes in government policies and market volatility are some of the factors that could impact price movements. Be aware of all these associated risks before you trade any contract in the market. 4) Avoid market rumoursIt is very important to take a calculated and informed decision when it comes to trading in the derivatives segment in share market. The internet is full of rumours and unsolicited tips regarding the best contracts that can help you make money. Don’t pay heed to these tips. Conduct your own research and find out the best transactions that fit into your overall investment plan. 5) Use your call options wiselyA call option offers the buyer the right to purchase a stock at a pre-determined price (also known as strike price). However, a big risk of using options is selling shares of a stock if you don’t already own it. This is known as a short call. This means you are selling a call option and you have to buy the stock at a fixed price in the future. This can pose a big problem if the stock price goes beyond the strike price. You would be forced to buy the shares at a market price that is much higher than the strike price; thus resulting in a loss. It is best to avoid short call until you gain experience in the derivatives market.To sum upThe derivatives field is large and full of potential. There are a lot of different ways you can make money in this field. However, if you are a beginner, it is important to be cautious when you invest through derivatives. The above list highlights some of the precautions you can take in order to invest successfully in futures and options. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

read more

Are you Investment ready?

*All fields are mandatory

related stories view all

  • Share Buyback – Meaning & Upcoming Buyback of Shares
    Posted by Mehul Kothari | Published on 14 Nov 2019

    “XYZ company announces a buyback of its shares”. You must have seen or read this headline multiple times in the last couple of years. Especially by companies from the IT or technology industry. According to reports, in the financial year 2018, buyback offers worth Rs. 50,000 crores were made in the Indian markets. Have you wondered what is share buyback and what are the technicalities involved with it? Or if you should give up your shares during buyback offers? Then read on and get all your queries resolved. What is share buyback? Buyback of Shares – Meaning:       A share buyback is a process through which a listed company uses its money and repurchases its own shares from the market. It is the opposite of an IPO (Initial Public Offer). Stock repurchase is also seen as a way for the company to re-invest in itself. Once        the stock buyback is complete, they are absorbed and cease to exist. There are two ways in which stock buyback can take place: Tender Offer: In this buyback channel, the company offers to buy back a certain number of stock at a quoted price. The buyback is done directly from the shareholders. Open Market: The open market buyback takes place through the secondary market (stock exchange). The resolution (special or board) needs to specify the maximum price for the buyback.       2. Buyback of Shares – Regulations:       SEBI has laid down the following guidelines for buyback of shares: It cannot be more than 25% of the total paid-up capital value and free reserves held by the company. It needs to be approved by the shareholders through a special resolution. If the buyback value does not exceed 10% of the total paid-up capital value and free reserves held by the company, it necessitates only a board resolution. Why do companies offer stock buyback schemes?1. Surplus cash but lack of investible projects This is one of the primary reasons behind stock repurchase by companies. Idle cash reserves come with a cost. Matured businesses do not need to invest exorbitantly in research, development or other such aspects. Also, holding on to unused equity funding results in ownership dilution without any good reason. Hence, companies prefer to buy-back their own shares.2. Tax-efficiencies Buybacks usually happen at a premium as compared to the market price. Companies prefer this route to reward shareholders rather than paying our dividends due to the tax implications. Dividends attract 15% DDT (Dividend Distribution Tax) for the companies as well as 10% tax in the hands of shareholders if the dividend income exceeds Rs. 10 Lakhs. Hence, earnings through buyback become more tax efficient for both the parties, even after considering the taxes applicable.3. Enhanced valuations Buybacks are associated with enhanced share valuations as a result of an improved PE multiple. Stock repurchase leads to a reduction in the number of outstanding shares and hence, capital base. This, in turn, improves the value of EPS (Earning per Share) as the same amount of dividend is now divided between lesser shareholders. The ROE (Return on Equity) also goes up as the cash assets on the Balance Sheets come down.4. Signal to the market Stock buybacks are also used to send indicators to the market. It signals that the company has great confidence in itself. Hence it is ready to repurchase its own shares (mostly at a premium) as it feels that the company is undervalued currently in the market. For instance, when the company management is highly optimistic about the future prospects but the stock price still reflects bearish sentiments based on past performance only.  In some cases, promoters can also use the buyback channel to tighten their hold on the company. This is especially true when the shareholding is highly diluted or is in the hands of individuals or investors who do not have the best interest of the company in mind. How to evaluate stock buyback offers? Now you know what is share buyback and the reasons why companies offer them. But the fundamental question remains – what should be your stance in case of buyback offers? Should you hold your stock or give them up? These pointers can help you take the final decision:1. Offer Price and buyback quantum Buybacks are lucrative only when they are offered at a significant premium amount. The offer price must be substantially above the current market price to make it worthwhile for the investor. Also, the quantum of the share repurchase amount should be substantial.  2. Look at the tax implications Till recently, shareholders had to pay capital gains tax on their buyback earnings. However, with the introduction of buyback tax for listed companies, investors are now exempted from the same. Companies will now have to pay 20% buyback tax. This move has been done as the Government observed that more companies were distributing their profits through the buyback channel rather than dividend as the latter attracted DDT (Dividend Distribution Tax). Note: The buyback tax is not applicable to companies who had announced their buyback schemes prior to 5th July 2019.3. Promoter Participation Promoters cannot participate in the buyback process if it is being done through the open market. However, they are allowed in case of tender offer. In case of participation by the promoter, there is usually a positive movement for the stock price in the long-term.    Final Words Buyback can be rewarding for both parties (company as well as investors). As an investor, it is important for you to understand the implications of each buyback offer and decide wisely. You should keep an eye out for the upcoming buyback of shares in 2019 and corporate news around the same. In case you feel that you are not able to decide on your own, you can always reach out to an expert like IndiaNivesh. Indiaivesh has been providing excellent financial solutions to investors since the last 11 years. It offers a wide range of products – broking, distribution, equities, strategic investments, investment banking as well as wealth management. With its “client-first” approach, skilled and experienced team members and state-of-the-art research and technological capabilities, you can be rest assured that your financial interests are in safe hands.  Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

    read more
  • SIP vs. RD - Systematic Investment Plan (SIP) Vs Recurring Deposit (RD)
    Posted by Mehul Kothari | Published on 18 Oct 2019

    Financial planning plays an important role in today’s time. For your money to grow into wealth, it is required that you invest it in good avenues. Many individuals set aside a fixed amount every month for investment purpose. The two most popular investment avenues for investing a fixed sum of money every month are Systematic Investment Program (SIP) in Mutual Funds and Recurring Deposits (RD). In this article, you will learn about the difference between RD and SIP. Let us begin by learning the meaning of the two terms. What is SIP? Systematic Investment Plan or SIP is an investment scheme where you can invest a fixed sum of money on a monthly or quarterly basis. It is a disciplined approach of investing your money because you set aside a fixed amount of money for investment purposes. You can start SIP by selecting a mutual fund scheme. The best part of SIP is that you can start it with an amount as low as Rs. 500. Let us now learn the meaning of recurring deposit. What is Recurring Deposit? Recurring Deposit or RD is a term deposit scheme offered by the banks. In this scheme, you have to select the duration of time and amount of monthly deposit. Upon the start of the plan, you have to deposit a fixed amount of money every month during the tenure of the scheme. In general, the duration of the scheme is minimum 6 months and on completion, 3 months of addition can be made up to maximum tenure of 10 years. Recurring deposit schemes are easy on the pocket because in this scheme you get the option to select the amount and tenure for which you want to continue the scheme. Let us now learn about the SIP vs. RD. Scheme of Investment SIP is about investing in mutual fund plans where you have the option to select between debt or equity funds on the basis of your risk-taking capability. Whereas, RD is a deposit scheme that can give you a fixed rate of returns. If you are looking for more flexibility than you can opt for a flexible recurring deposit scheme.  Frequency of Investment SIP can be started with a small amount. It is your choice to invest in SIP on a weekly, monthly and quarterly basis. In the case of recurring deposits, you can invest a fixed amount on a monthly basis. Choice of Investment SIP gives you the option to invest as per your risk appetite. Based on your risk-taking capability you can invest in different mutual fund schemes like equity, debt, hybrid, etc. On the other hand, a recurring deposit has no investment options. To earn a fixed return, you have to invest a fixed amount of money on a monthly basis. Tenure You can opt for SIP investment for any tenure or duration of time. The minimum period of investment is 6 months. Whereas, in the case of recurring deposits, they have a fixed maturity date. The minimum period of investment is for 6 months and the maximum period up to which you can do a recurring deposit is 10 years. Return The rate of return in SIP is not fixed because their performance is linked to the market. In general, over the past 10 years, the equity mutual funds have given return of 12% to 14% per annum and debt mutual funds have given a return of 8% to 9% per annum. On the other hand, when you start investing in RD, the rate of return is already known to you. Liquidity SIP is highly liquid in nature i.e. they can be withdrawn whenever you want. However, you must remember that you would be charged an exit load on redeeming within 1 year of investment. Just like SIP, RD is also liquid in nature. RD attracts pre-withdrawal charges in case you make a withdrawal before the end of the tenure. Risk Investing in mutual funds is risky because the performance of the fund is dependent on market performance. Poor market performance can even lead to capital erosion. However, in comparison to the equity mutual funds, the debt mutual funds are less risky. On the other hand, RD is a safe investment option. This is because the funds are directly deposited into the bank and they have a fixed rate of return. Hence there is no risk of capital loss in RD. Tax Benefit The SIP investments and returns generated on it are exempt from tax only if the investment is made in Equity Linked Savings Scheme (ELSS) funds. Whereas, an investment made in the form of recurring deposit or interest earned on it is not exempt from tax. Investment Goal SIP acts as a one-stop solution to all types of investment goals. In SIP, depending on the frequency of your investment and funds selected, you can invest for short, medium or long term. On the other hand, RD investment, in general, is done for short term purposes. It cannot generate wealth like SIP. The above mentioned are a few differences between the SIP vs. RD scheme. Now the next important question that would arise in your mind is, SIP or RD which is better? Well, the answer to it is very subjective and will vary from person to person. Both the investment schemes are very different from each other and have their own benefits. Depending upon your risk appetite and tenure of the investment, you can select the right scheme for you. You can also refer to the difference between the two schemes and understand which investment option is ideal for you. The beginners or inexperienced investors often find it difficult to take the investment decisions on their own. To assist them in financial planning, IndiaNivesh Ltd. is always at their assistance. We understand your financial goals and risk appetite before suggesting you any investment plan or scheme. We provide our clients with innovative and customised financial solutions. Our aim is to exceed the expectation of client in all our endeavours. You can even open a demat account with us and trade or invest in the stock market on the basis of our regular research reports.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

    read more
  • Gold Exchange Traded Funds (Gold ETFs) - Overview & how to invest in it
    Posted by Mehul Kothari | Published on 16 Oct 2019

    Gold Exchange Traded Funds (or Gold ETFs) combine the two passions of many investors – stock trading and gold investments. They provide a channel through which you can be a part of the bullion (gold) market. The investor’s funds are invested in gold stocks but there is no physical delivery of the yellow metal. They are often referred to as open-ended Mutual Funds that invest the corpus in gold bullion. Key highlights of Gold ETFs: Gold ETFs in India started in the year 2007. Slowly but steadily they have started gaining momentum. Some of the key benefits offered by Gold Exchange Traded Funds are:1. Transparency: Transparent pricing is one of the USPs of Gold ETF. Like stock prices, information about gold prices are easily available to the general public. You can easily determine the value of their portfolio by checking the gold prices for that time or day.2. Ease of trade: Just like shares, Gold ETFs can be easily traded on the stock exchange. You need to buy a minimum of one gram of gold which is equivalent to one unit of Gold ETF. Investors can invest in Gold ETFs from any location in India. Moreover, the difference in price (due to GST) will not be applicable.3. Cost efficiencies: Unlike many investment avenues, there are no entry or exit loads with Gold ETFs. The only cost involved would be the brokerage fees. 4. Risk: Unlike physical gold, there are no storage hassles or theft fears with Gold ETFs. Additionally, gold prices are not prone to frequent fluctuations. This makes Gold ETFs a relatively safer choice. 5. Tax efficiencies: Gold ETFs do not attract any wealth tax or securities exchange tax. Also, if they are held for a period of more than one year, the gains are treated as long-term capital gains. For anyone interested in holding gold, these ETFs provide a tax-efficient alternative. 6. Diversification: Gold ETF investments can help to bring diversity in the investment portfolio. During volatile market conditions, they can help to stabilise or improve the overall returns for you.7. Collateral: Gold ETFs are accepted as security collaterals for loans or capital borrowings by many financial institutions. Why is investing in Gold ETFs better than traditional forms of gold? You do not need to worry about impurities or adulteration in the metal As ETFs are held in electronic form, there are no storage related issues or costs Easy trading on the stock exchanges and hence high liquidity Real-time tracking of investments No mark-ups costs such as making charges, wear and tear involved The price of Gold ETFs remains the same throughout the country. However, the gold prices can vary from one location to another.  How does Gold Exchange Traded Fund work? The investment is converted into unit of gold basis the cost applicable at the allotment time. For instance, the cost of gold (per gram) on a particular day is Rs. 3000. Ms. X wants to invest Rs. 60,000 in Gold ETFs. Her investment amount will get translated into 20 gold units. At the back-end, physical gold acts as security for these ETFs. For example, if you invest in Gold ETFs, the entity at the back-end purchases gold. They act as the custodian for the investment and also guarantee for the purity of the metal. The stock exchanges assign the responsibility of buying and selling gold to authorised members or participants which in turn can be used to issue ETFs. These are usually large companies. As a result, these authorised members ensure that there is parity between the gold cost and ETFs. How to invest in Gold ETFs? Gold ETF investments are a simple affair.1. Choose a broker or fund manager: Many financial institutions (including banks) offer Gold ETF products. Similar to the online share trading, you would need to reach out to a fund manager or a firm which will trade on behalf of you.2. Demat and Trading Account: In order to invest in Gold ETFs, you need to have a demat account and an online trading. You can apply for these accounts online with the broker or such service provider by providing details like PAN, Identity Proof, residential proof, photograph and a cancelled cheque (for bank account linkage).3. Online Order: Once the accounts are in place, you can select the desired Gold ETF and place the order through the broker’s online portal. You can also opt for Mutual Funds which have an underlying Gold ETF.4. Confirmation: The placed orders are then routed to the stock exchange. The purchase orders are matched with the corresponding sell orders and accordingly executed. A confirmation email or message is sent to you. Who all should invest in Gold ETFs? Gold is a relatively safe and stable investment. Its prices do not fluctuate as much as equities. Hence, Gold ETFs can be a good choice for you, if you do not want to take too much risk. Additionally, since these ETFs are tradeable easily on the stock exchange, they are useful if you are looking for an investment opportunity with high liquidity. Hence, it is a good option for you to diversify your portfolio. So, if you meet the requisite objective of investment, Gold ETF is a good option for you as well. Things to keep in mind while investing in Gold Exchange Traded Funds Here are some tips that you could use while investing in Gold ETFs Gold is generally considered as a stable asset. However, you should not forget that the Net Asset Value (NAV) of Gold ETFs can also fluctuate basis market volatility As an investor, you need to bear brokerage fees or commission charges for Gold Exchange Traded Funds. Hence, you should check these costs while deciding on the broker or fund manager However, you should not make the decision on the basis of price alone. Consider the broker/ fund house’s past track record, services provided, type of clients handled etc. before choosing the service provider Do not over-invest in Gold ETFs. It is usually suggested to restrict investment in these ETFs to 10% of the entire portfolio. Final Words A smart investor knows that all that glitters is not gold. A good fund manager or firm helps choose the best Gold ETF products in India. IndiaNivesh, a well-known financial services company can help in this regard. With their rich experience in the Indian market and in-depth understanding of the financial ecosystem, they have helped numerous customers to grow their wealth and fulfill their financial goals.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

    read more