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What is the difference between gold ETF and physical gold?

Is gold ETF (exchange traded fund) better or physical gold better?

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3 Approved Answers

Tanya

Gold ETFs are exchange traded funds that invest in physical gold of 99.5% purity. One unit of gold ETF represents one gram of gold. The value of gold ETF depends on the price of the physical gold.

Gold ETFs and physical gold vary on the following parameters:

  • Pricing: Price of gold varies from jeweler to jeweler and is not standard. While Gold ETFs are priced as per the international standards.
  • Charges: Making charges on physical gold depend on the jeweler and usually vary from 20-30%, whereas gold ETFs have an expense ratio of 1% every year along with approximately 0.5% of brokerage being charged on each transaction.
  • Liquidity: Physical gold can only be exchanged through jewelers while gold ETFs are traded on stock exchanges, NSE and BSE.
  • Requirements: A demat account is required to invest in gold ETFs.
  • Wealth Tax: Wealth tax of 1% is applicable if the amount of gold purchased is more than Rs.30 lakhs, while no wealth tax is applied on purchase of gold ETFs.

Pijush Kanti Biswas

Gold ETF are ETFs which make direct investments in Gold. To make desired return Gold ETF, fund manager looks for daily gold prices and trade in physical gold. 1 unit of ETF is equivalent to 1 gram of gold with 99.5% purity.

Physical gold is available in physical form with different levels of purity.

Gold has proven as safe haven for many investors for centuries as the performed well in all adversaries such as war or global market. But how you are investing in gold is very important. Investing gold ETF are better option than investing in physical gold. Physical gold is best for immediate personal use not for investment.

Some of the advantages of investing in gold ETF rather than investing in physical gold are:

  • Buying gold ETF is hassle-free as compared to physical gold with no risk on purity of gold.
  • Gold ETF have more liquidity. These funds are listed and traded on a stock exchange like common stocks. So, can be bought and sold at any time of the day.
  • Physical gold attracts various taxes like wealth tax and VAT.
  • No storage problem with Gold ETF. With physical gold there is a risk of theft.
  • Investors can place different types of order for buying ETFs like stop-loss order, buy on margin etc, as they are traded like stocks in market.

So, based on your personal investment style, strategy and goals, include them in your investment portfolio.

Few examples of Gold ETF are:

Happy investing!

Ankit

Gold ETF are open ended exchange traded funds where the money is invested in gold bullion with 99.5% purity. Physical gold is available in physical form with different levels of purity.

Gold ETFs are held in electronic form, very similar to holding of shares. It acts just like a bank account where balance is there in the account, but money is not held physically. When you want the money from your bank you withdraw the same. Similar is the case with Gold ETFs. If a person is holding 1 unit which is equivalent to 1 gram of gold, then he can sell that unit and the mount will get credit to his account. A demat account is needed for a person willing to trade in gold ETF. In the case of physical gold, physically holds the gold.

Some key differences are:

·     Physical gold biscuits re available for 10 grams and in multiples of that whereas gold ETF can be available for 1 gram also.

·     If gold ETF is sold after a year than tax rate of 20% is charged and indexation benefit is given and for less than 1 year short term capital gain tax is applicable whereas for physical gold everything is the same except instead of 1 year here 3 years are considered for computing long term capital gain

·     Gold ETF includes expense ratio of 1% every year whereas in case jewellery is purchased then 20-30% is paid as making charges.

Since physical gold has cultural significance, people still opt to buy physical gold but investors looking to invest in gold prefer Gold ETF on physical gold. Moreover a demat account is needed for Gold ETF whereas the same is not true for physical gold.   

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.
Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, investment goal, time frame, risk and reward balance and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs.
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