Digital Gold vs Gold ETFs

There is a long-running debate between digital gold and gold ETFs. So, which one should you invest in? That is the question we seek to answer below. 

What Is Digital Gold?

Digital gold is an electronic way to invest in 24-karat gold, allowing you to purchase, sell, and hold it online without the risks and hassles of physical storage. Your investment/holdings are backed by actual gold stored by the platform/provider in insured, secure vaults. However, digital gold is not regulated by SEBI (Securities and Exchange Board of India) or RBI (Reserve Bank of India).

How it works 

• You can invest in either a specific weight (grams) or amount (value in rupees) through these platforms. All transactions are done at the prevailing market prices on the day.
• The provider stores equivalent physical gold in a vault on your behalf. A third-party trustee holds the physical gold in your name.
• You hold a digital record/locker balance, which confirms your ownership of the gold in question.
• You can sell back via the platform at the current market price or redeem the gold as coins or bars, provided you meet the minimum weight requirements and the platform allows it (minting and shipping charges may also apply). 

Purity claims

• Many providers market digital gold as 24K/999.9. 
• 24 karat gold is guaranteed by most reputable platforms. 
• 99.99% or 99.9% purity is ensured by most of these leading platforms. 
• Make sure that these are certified for verification. 
• Check the provider’s documentation carefully, including details on standards and authenticity.

What Is a Gold ETF?

Offered by AMCs, Gold ETFs are exchange-traded funds that track the price of physical gold by holding high-purity bullion (e.g., 99.5% or higher) in secure vaults. This allows investors to buy or sell units on stock exchanges for convenient, dematerialised exposure to gold. 

The units of these funds are also traded on stock exchanges, such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE). Each Gold ETF unit is usually representative of a specific weight of high-purity gold. 

You can buy and sell Gold ETF units in real time throughout the trading day on a stock exchange, much like stocks, providing investors with greater price transparency and liquidity. These funds are also regulated by the SEBI (Securities and Exchange Board of India). 

What you need

You will require a demat account to hold your Gold ETFs electronically, just like shares. You will also need a trading account to place your buy/sell orders on the stock exchanges. Opening a brokerage account with a registered broker will help you get access to these accounts. You can buy and sell these units on the stock exchange through the broker’s platform, like stocks, only during market hours. The ETF's price closely mirrors the real-time physical gold price in India. 

Key Differences Between Digital Gold and Gold ETFs

1) Regulation & Investor Protection

• Digital gold is not a regulated product. SEBI has cautioned (on 8 November, 2025) that digital gold products on online platforms are not within its purview, and are not notified as commodity derivatives or securities. Hence, the investor protection mechanisms do not apply to the same extent. You’ll have to make your investment decision solely on the platform/provider's credibility and overall reputation in this case. 

• On the other hand, Gold ETFs are within the securities market framework and are regulated products. They are stringently regulated by SEBI, which offers higher investor protection. 

2) Ownership

• Digital gold: You have a platform or provider-linked claim/holding on vaulted gold in this case. 
• Gold ETF: You hold units of a fund that tracks gold prices, and in this case, the gold is securely stored/held by the fund. 

3) Buying/Selling mechanics

• Digital gold: You can buy and sell digital gold on the platform, ensuring anytime access. To exit the investment, you can sell back the gold to the platform at the current market price. Sometimes, you can physically redeem your holdings in the form of coins or bars.
• Gold ETF: They are bought and sold like stocks on exchanges. However, this can only be done during market hours. 

4) Minimum investment

• Digital gold investments can start at extremely low prices, i.e. from ₹1/₹100, depending on the platform. 
• The minimum Gold ETF investment is usually 1 unit, though it varies by ETF. 

5) Liquidity

• Digital gold: Offers higher liquidity, with the option to sell holdings back to the platform at any time. However, it depends on the platform's buyback policy, which is subject to change, and there are hidden costs, such as the spread (the difference between the buy and sell prices). 
• Gold ETF: Exchange liquidity depends on the trading volumes. So, higher daily trading volume indicates more buyers and sellers in the market. This makes it easier to execute orders. However, a narrow bid-ask spread (the difference between the buy and sell prices) may indicate higher demand and lower transaction costs. A larger AUM (assets under management) often indicates higher liquidity. 

6) Physical delivery

• Digital gold: Some platforms may offer delivery or physical redemption in the form of coins or gold bars. However, it is subject to minimum weight requirements. At the same time, minting and other charges may apply for delivery to your address. 
• Gold ETF: There is no physical delivery or redemption for the investor in this case.
  

Costs: GST, Spreads, Expense Ratio, Brokerage

Cost components of Digital Gold

• GST: Buying digital gold usually attracts GST just like buying regular gold, i.e. 3%. 
• Spread: This is the built-in friction, or the difference between the buy and sell prices. The platform charges to cover operational costs. 
• Storage/insurance or delivery charges: These are not always free. They may have an initial free period, although storage and insurance are chargeable thereafter. If you’re opting for physical delivery, there are additional charges. 

Cost components of Gold ETFs

• Expense ratio (varies as per the ETF in question)
• Brokerage + exchange charges + demat costs (dependent on the brokerage you’re signing up with)

Digital Gold vs. Gold ETFs: Which One Performs Better?

What both try to track

• Both digital gold and gold ETFs closely track gold prices. 
• They aim to track the market price of gold without requiring investors to store physical gold themselves. 
• However, the main differences arise from spreads, charges, liquidity (bid-ask), and tracking errors. 
• Gold ETFs aim to track domestic gold prices by holding physical gold bars, while digital gold buys physical gold to back the digital units sold to investors. 

Tracking difference 

• Gold ETFs may deviate slightly from the NAV or spot price of gold due to market dynamics and other fund and management expenses. 
• Digital gold may fluctuate due to fees and platform spreads. 

Taxation

Digital Gold taxation 

• Digital gold is taxed just like physical gold 
• STCG (short-term capital gains) applies to holdings less than 24 months. Taxes are at your personal income tax slab rates
• LTCG (long-term capital gains) applies to holdings above 24 months, with taxes at 12.5% (flat rate) minus indexation

Gold ETF taxation

• STCG applies for less than 12 months, and the taxation is at your personal income tax slab rates
• LTCG applies to holdings above 12 months, with taxes at 12.5% (flat rate) without indexation

Safety & Risk

Risks common to both

• The biggest risk for both these investments is the volatility in gold prices. This market risk is inherent to investing in both digital gold and gold ETFs. Gold prices may fluctuate due to demand and supply, geopolitical events, and other factors.

Risks more relevant to Digital Gold

• Counterparty risk:

The risk that the platform/provider fails due to fraud, bankruptcy, or operational problems. In such scenarios, you will find it hard to redeem the gold or recover the funds you invested. 

• Lack of proper regulations

Unlike traditional SEBI-regulated investments, digital gold products are mostly unregulated. There is no formal mechanism for grievance redressal, which does not ensure any investor protection. 

• Redemption issues

There is no guarantee that the market will be ready to sell digital gold swiftly at prevailing market prices. You may face problems converting digital holdings into cash or physical gold, as the spread is also present in this case. 

• Storage and security issues

While gold is usually stored in insured vaults, there is always the risk of failure, theft, or damage to the storage provider. 

• Operational risks

It covers multiple risks associated with the provider’s internal processes, including system failures, mismanagement, and human error. 

Risks more relevant to Gold ETFs

• Market risks

Gold ETF values fluctuate with gold prices, subject to global economic developments, interest rates, inflation rates, and other events. 

• Liquidity risks or bid-ask spread risks

Gold ETFs with lower volumes or smaller AUMs (assets under management) may be harder to trade swiftly without major price concessions. A wide bid-ask spread in low-volume ETFs means that you will have to pay more to purchase shares or get less when selling the same. 

• Tracking error risks

The ETF's performance may not always mirror the price movements of the underlying gold. These tracking errors may be due to expenses, management charges, and the mechanisms of how the fund purchases and sells physical gold.

• Other risks

Most gold ETFs represent physical gold stored in vaults. There is always the risk of loss, theft, or damage, as well as other regulatory and political risks. 

• Expense ratio risks

All ETFs charge annual management fees or expense ratios, which may compound over time and erode profits. 

Which Should You Choose?

For small, frequent buys

• Digital gold scores high for small and frequent purchases. 
• It has lower entry barriers, with reasonable investment amounts, and greater convenience for buying gold online. 

For long-term, regulation-first investors

• For long-term investments, gold ETFs make sense in several ways. 
• They are strongly regulated by SEBI when traded on exchanges during market hours. 

If you are seeking physical delivery

• Digital gold is the option in this case if you desire physical delivery (subject to the platform allowing it and minimum weight requirements). 

If you are seeking quicker LTCG classification

• If you want swifter LTCG classification, then gold ETFs stand out. Their LTCG classification applies to holdings of more than 12 months, while it applies to holdings of more than 24 months for digital gold.