Gold ETF vs physical gold – Which is the best investment option?

Gold ETF vs physical gold – Which is the best investment option

Gold ETF vs physical gold – Which is the better investment option?

When gold prices are climbing up, how to invest in gold ? Should we invest in Gold ETF or invest in physical gold. What is a gold ETF ? Why it is becoming popular day by day. Today we would discuss about the advantages and disadvantages of both these investment options.

Investing in physical gold

Physical gold is purchased for several reasons. It could be for marriage, could be for the ornaments etc.

Gold ETF vs physical gold – Which is the best investment option

Advantage of buying physical gold:

  1. Physical wearing: Most of the investments in physical gold are done for ornaments to wear.
  2. Liquidity: One can sell physical gold easily in open market.
  3. Long term appreciation: In the longer run, gold has proved to be a good investment option as the gold prices are increasing year on year. In the last 5 years, gold has given 24% annualized returns.

Disadvantage of buying physical gold:

  1. Loss due to theft: One of the main draw back in investing in physical gold is loss due to theft.
  2. Wastage due to wear: When you intend to sell the physical gold ornaments, the wastage of 4% to 8% would be deducted from the sale amount.
  3. Locker charges: If you are accumulating physical gold, it may not be safe to keep at home, hence you may need a bank safe locker. However for safe lockers, you need to pay the annual charges which would be a burden every year.

What is a Gold ETF?

An exchange traded fund is an instrument which tracks the underlying asset. It could be an index stocks or it could be a particular commodity like Gold. A Gold ETF is one which tracks the commodity gold. Price of the Gold ETF is directly affected with the change in the gold price. There is no big variance when you want to choose the best Gold ETF schemes as all such schemes track only gold as underlying asset.

Advantages of investing in Gold ETFs:

Gold ETF’s have become popular these days due to various features associated with it.

  1. Gold ETF’s in electronic form: Unlike physical gold, the Gold ETF’s are issued in the electronic form. You need to have demat account to buy these Gold ETF’s.
  2. Safe investments: Since the gold ETF’s are in electronic form, they offer safety of the investments. There is no loss due to theft.
  3. Price transparency: Gold ETF’s are traded in stock exchanges like any other stocks. Hence you can track the gold etf prices and you can sell them whenever you want.
  4. No assurance required for gold purity: When you invest in physical gold, you need to be worried about purity of gold. When you invest in Gold ETF’s, you need not worry about the purity as you are not purchasing the physical gold.
  5. Affordability for small investors: Gold ETF’s can be purchased as low as 1 gram which can be afforded even by small investors.

Disadvantages of investing in Gold ETF: There are few disadvantage of investing in investing in gold ETF’s.

  1. Commission/transaction charges: Like any other stock trading, when you buy or sell gold ETF’s on stock exchanges, you need to pay commission/transaction charges to the broker. The commission would depend on the broker and which ranges around 0.25% to 0.75% on the purchase or sale value.
  2. Annual maintenance charges: You need to pay annual maintenance charges for your demat account. If you are using your demat account for stock trading, it may not be a burden for you. However if you are using it only for Gold ETF’s, it would be an additional charges for you.

There are various gold etf schemes like GS Gold BeES, R*shares gold ETF,  SBI Gold ETF, Kotak Gold ETF, UTI Gold ETF, Quantum Gold ETF etc., There are no major variances in the returns as they all invest in a single commodity i.e. gold.

Conclusion: Investing in physical gold and Gold ETF’s have their own advantages and disadvantages. Though there are various ways to invest in gold, invest wisely based on your requirement. However if you are looking for buying gold only for investment purpose, my suggestion would be in investing in Gold ETF’s with its variety of advantages comparing to physical gold.

Readers, what is your view about investing in gold ETFs? Please give your comments

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  • Umesh

    Suresh Sir,
    Sir Can You give me information about mutula Fund Investments I am Invest 2000 to 3000 Per month Can You tell Me It is good or Not.

  • David

    Nice article. I am planning to invest in gold ETF. I planned to invest either in Goldman Sachs Gold Exchange Traded Scheme or SBI Mutual Fund – Gold Exchange Traded Scheme. Please suggest which one should I invest. If both the option is not good let me know, which one I need to invest…Thanks

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