InvestorQ : There are two things I want to understand. When I buy gold ETF does it increase the fund corpus and how safe is the gold ETF as a product?
Dhwani Mehta made post

There are two things I want to understand. When I buy gold ETF does it increase the fund corpus and how safe is the gold ETF as a product?

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Khushi Patel answered.
3 years ago
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There are two parts to your question. Let us address the first part first. This is where gold ETFs are unlike a normal mutual fund. When you buy units of a mutual fund scheme from the AMC, the AUM of the fund increases and when you redeem units the AUM of the fund reduces. In case of ETF, there is only transfer of ownership from seller to buyer and the ETF AUM remains constant. ETFs are like closed ended funds and the corpus does not change. The fund AMC does not buy or redeem the gold ETFs. You can only sell the gold ETFs if there is willing seller at the price you want, not otherwise.

Now let us come to the second part which is the issue of safety of gold in your ETF portfolio. In case you are worried about what happens to your money, remember that gold ETFs are regulated by SEBI and every unit is backed by physical gold. Normally, gold funds tend to keep their physical gold in custody with Bank of Nova Scotia. What you need to be assured of is that every unit of gold ETF is secured by equivalent physical gold.

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