Gold ETF Vs Physical Gold: Which Is Better For Long Term?

 Gold ETF Vs Physical Gold: Which Is Better For Long Term?

Gold is one of the most sought after assets here in India. Traditionally this shiny commodity plays a poignant role in several Indian customs and traditions. Gold is not just a commodity, it is a status symbol for Indians. Apart from flaunting gold at weddings, ceremonies and other events, it also has an investment value to it. Gold is also bought in solid form in different shapes and sizes. Gold coins, bars and biscuits are often purchased by conservative investors for investment purposes. Gold as an asset has always stood strong against inflation and has universal acceptance of being a wealthy asset.

Thanks to advent in technology and modern developments in the world of investing, buying gold has never been easier. Investors keen on investing in gold for the long term now have the option of buying digital gold in the most affordable, secured and convenient way. Indian investors seeking investment in gold as an asset can now invest in this precious metal through exchange traded funds (gold ETFs).

What are gold exchange traded funds?

Gold exchange traded fund units are traded at the stock exchange and can be bought and sold just like company stocks at the exchange. These funds aim to generate income by investing in gold bullion and gold manufacturing companies.  Market regulator Securities and Exchange Board of India or SEBI, defines a gold exchange traded fund as, “an open ended scheme which replicates/tracks the particular index. Of the total assets, this fund must invest a minimum of 95 per cent in securities of a particular index (which is being replicated or tracked)”. This fund generally tracks the price of physical gold as its benchmark with minimal tracking error. Since it tracks the price of international gold, investors can buy Gold ETFs which are close to the actual price of the gold. Thanks to gold ETFs gold enthusiasts can store gold electronically and trade this precious yellow metal depending on their investment objective.

What is better for long term investment: Physical gold or gold ETFs?

In order to determine which type of gold investment is feasible for a long term investor, let us do a head-to-head comparison between these two investment avenues:

Parameter Gold ETF Physical Gold
Investment limit Investors need to purchase a minimum of 1 gram of gold. There is no upper limit in gold ETFs No limit whatsoever
Safety Since gold ETFs are stored in electronic format in a demat account, they are safe and secured Physical gold is constantly exposed to the threat of theft. One may have to rent a safety vault for storing this precious yellow metal
Authenticity of gold Investors do not have to worry about the purity of gold as this fund invests in gold that meets international standards (up to 99.5 percent pure) The purity of gold is always a concern especially when you buy it in physical form. Its authenticity and purity may vary from vendor to vendor
Liquidity Gold ETFs can be traded daily at the stock exchange. Investors can withdraw their gold ETF units to cater to their financial needs. These funds offer great liquidity Physical gold may lose its value at the time of sale. Also, the buyer may influence the price tag at which the physical gold will be sold. One may or may not find an immediate buyer for selling physical gold


Now that you know the difference between gold ETF and buying gold in physical form, what do you think is a more feasible option for long term investment? It is obvious that gold ETFs are a modern and convenient way to invest in gold without having to worry about its safety or security. However, investors should determine their risk appetite before investing in gold ETFs as these investments do not offer guaranteed returns.

Teresa Martinez

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