Are you confused between buying a physical gold or Investing in Gold ETFs? Well, the growing popularity of gold ETFs has caught many investors' attention and thus the question of "where should I invest?" arises. Though both the forms (Gold ETFs vs Physical gold) are a way of holding gold, barring the form of investment and other marginal differences that exist. Hence, in this article- Gold ETFs Vs Physical Gold, we will see which form offers better investment benefits.
When it comes to a non-physical form of Gold Investment, gold ETFs are a popular choice in India. Gold ETFs (Exchange Traded Fund) are listed schemes that invest in underlying gold bullion. These are listed and traded on major stock exchanges. Gold ETFs are held in electronic form, where one unit is equal to one gram of gold. Additionally, the underlying gold is 99.5% pure.
This has been the traditional way of buying/accumulating gold in India. Physical gold can be bought in the form of jewellery, ornaments, bars, coins, etc.
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A physical form of gold like coins, bars or biscuits are available in the standard denomination of 10gm that requires a huge investment. Gold ETFs are available in small quantities, i.e., even in 1gm.
Physical gold holds 10-20% of making charges, whereas, gold ETFs don’t hold any making charges.
In ornaments or jewellery, purity of gold is always in question, but gold ETFs deals with 99.5% purity of gold.
Pricing in physical gold is never uniform, also, prices may slightly vary from jeweller to jeweller. Gold ETFs are priced as per International standards and are always transparent.
One percent wealth tax is applicable if the value of physical gold possessed by an individual is more than INR 30 lakhs. Whereas, in gold ETFs, wealth tax is not applicable.
The return charges in physical gold is calculated as follows: - Return = Current price of a gold minus buying price & making charges of an ornament. And in gold ETFs, the return is calculated by taking the current price of a gold unit trading on the stock exchange minus brokerage charges and buying price.
Since, many people keep their gold in bank lockers, it attracts storage costs. On the other hand, gold ETFs do not attract any storage expense since they are held in the electronic form.
Physical gold can be purchased from jewellers or banks, but can be only exchanged through jewellers. Buying/selling of the gold ETF is much easier as it is traded on the stock exchanges - NSE and BSE.
|Parameters||Physical Gold||Gold ETFs|
|Short Term Capital Gains||If held for less than 3yrs, then short-term Capital Gain tax is as per Income Tax slab||Same as physical gold|
|Long Term Capital Gains||If sold on profit after 3yrs then a capital gain tax of 20% with indexation is applicable||Same as physical gold|
|Convenience||Held physically||Held electronically|
Some of the best underlying gold ETFs to invest are:
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2019 (%) Invesco India Gold Fund Growth ₹15.1953
₹45 3.4 20.9 31.3 17.7 12.6 21.4 Aditya Birla Sun Life Gold Fund Growth ₹15.5213
₹198 3.1 15.2 29 16.5 12.2 21.3 SBI Gold Fund Growth ₹15.53
₹804 3 13.8 30.8 17.5 12.1 22.8 Nippon India Gold Savings Fund Growth ₹20.5007
₹1,270 3 17.7 30.5 17.1 11.9 22.5 HDFC Gold Fund Growth ₹16.0596
₹905 3.8 12.4 31.1 17.6 12.3 21.7 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 25 Sep 20
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While physical gold form loses out to gold ETFs with extra benefits like no making charges and wealth tax, both still hold certain kind of advantages and disadvantages distinct to each other. Hence, it is advisable for investors to weigh their gold investment requirements carefully and invest in a form that meets their objectives!