Is gold ETF (exchange traded fund) better or physical gold better?Asked
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 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:
So, based on your personal investment style, strategy and goals, include them in your investment portfolio.
Few examples of Gold ETF are:
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.