Gold or Gold ETF, which one should you buy?


The relation between Indians and Gold is a long-standing one for thousands of years.Right from the early ages, people have bought and used gold ornaments. It has been a part of our religious and cultural aspect. It is also used as a status symbol and as a form of saving with more than 60% of the total gold in India stored in Indian households as gold jeweler. With the increase in the price of gold every day, it is increasingly used as an investment option.

There are various ways in which you can buy gold. You can purchase gold physically in the form of gold bars, gold coins and jeweler. You can also buy it in the form of Gold ETF, whose popularity is increasing nowadays. Thus, gold can be purchased in physical form or as electronic securities. The main confusion among people is not knowing which among these two methods is the best. Let us see the benefits of Gold ETF's and compare it with physical gold.

Gold ETF Funds

Gold Exchange Traded Funds (ETF) are one form of commodity ETF funds which use Gold as the main principal asset. Like any other fund, they are also traded in the stock exchange. But the value of these Gold ETF is linked to the value of physical gold. Thus, based upon the increase and decrease in the values of physical gold, the value of these funds will also vary.

Characteristics of Gold ETF

Gold ETF's are traded like mutual funds in the stock market by buyers and sellers. The governing of these funds and the creation of liquidity is done by some authorized participants like banks and industries. Hence these are purely electronic in nature. Based on the value of physical gold in the market, the value of these funds also varies. Thus 1 unit of Gold ETF = 1 gram of physical gold in most cases.

Since Gold ETF's are traded using stock exchange, they are very easy to trade. They can be bought and sold like normal shares. Further transparency in price is being ensured as the price of these funds are fixed and put in public domain. They can act as an alternative investment option to equities as there is minimal risk. Gold is one of those investments that have the least fluctuation in the market and is not easily affected by external factors like the stock market. Hence it is suitable for long term investment.

Gold vs Gold ETF

When it comes to physical gold or gold ETF, the possible solution is to analyse both their strength and weakness and find out which one of the two gives better returns.

  • Nature of Investment

Physical gold can be used as an ornament as well as an investment option. But Gold ETF's are not physical in nature. They can be bought and stored as electronic funds. Indian nature is such that people don't sell gold easily unless there is emergency, hence the money invested in gold gets blocked.

  • Purchase Amount

The cost of purchase of Gold ETF is lesser than that of physical gold. While you purchase gold in form of jewelry, you have to pay for the amount of gold purchased along with some making/wastage charges which differ from seller to seller. But in exchange funds, only the cost of the funds is collected while sometimes the brokerage charge varies between 0.5 to 1%.

  • Quantity Purchased

The volume of gold we can purchase is mostly high. It is not easy to buy physical gold in small quantities. But Gold ETF can be bought in smaller quantities. We don't have to go from one jeweler to another to get the right price.

  • Purity of Gold

When we purchase physical gold, the purity of it will always be a big concern in our mind. Physical gold is mostly found in 22 carat and 18 carat range. Thus, the gold we buy is not fully pure. Even when we try to sell our gold, it will be a big task to sell it for the same purity as jeweler use various methods to determine the purity. But there is no question of purity in Gold ETF.

  • Safety of Gold

When we purchase physical gold, we have to worry about its safety. We must safeguard it in our home or put it in bank lockers for which we must pay some money. There is always a risk of theft. Further, as the years pass, the gold needs to be polished to maintain its original shine. But there is no need to worry about safety or storage when it comes to Gold ETF. Since it is an electronic fund, its safety is guaranteed by the stock exchange.

  • Liquidity or Resale

When we try to resell our physical gold, it is not an easy job. We must sell it to the same jeweler from whom we bought the jewelry. There will be some wastage charges which brings down the overall profit that we might get. But in Gold ETF's, there is no problem in resale. You can sell it whenever you want and the amount will be directly credited to your account.

If you want to increase your investment portfolio and you see gold as an investment option, then going for Gold ETF will be useful than opting for physical gold as you can find more safety and higher profit in it. 



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