Gold ETF V/S Physical Gold: Know the Difference

 Gold ETF V/S Physical Gold: Know the Difference

We, as Indians, don’t need any kind of special introduction to gold. This precious yellow metal is loved and cherished by almost every Indian. Be it a wedding, or an auspicious ceremony, gold has always played an integral part in a large number of Indian customs, traditions and rituals. Apart from flaunting their precious metal at public and private occasions in the form of jewellery, gold is considered as one of the most favourite forms of traditional investment.

Although gold is purchased the form of jewellery, bars and coins, holding gold investments in physical form comes with a high expense ratio. There is always a fear of theft and hence keeping a lot of physical gold in your apartment is also very risky. Most Indians prefer keeping their gold jewellery and ornaments in a bank safe or locker. Remember that these safes offered by banks aren’t free and there is an annual fee which needs to be paid. For gold jewellery, there are making charges involved, and the resale value is relatively lower than what you bought it for. Also, the biggest concern of all is the purity of gold.

However, these days it is possible to buy gold and store gold in electronic format. Thanks to the evolution in the investment sector, gold enthusiasts and investors now have the choice if they of purchasing gold in the form of Gold ETF (Exchange traded fund). Indians seeking gold investments can now purchase gold through in the form of ETF instead of purchasing physical gold, and bring down the expense ratio of owning gold.

But what exactly is Gold ETF, and how is it different from physical gold? If you too are looking for answers to such questions, read further:

What is Gold ETF?

Gold ETF (Exchange Traded Fund) is a type of investment product which can be purchased and sold on the stock exchange. This fund generally tracks the price of physical gold as its benchmark, and hence, investors can buy Gold ETFs close to the actual price of the gold. It can be considered as a simplified approach for investors looking to invest their hard earned money in the yellow commodity.

Are there any benefits of investing in Gold ETF?

Like all mutual funds, investing in Gold ETFs have some benefits as well. They are stated below:

  • No need to worry about theft: By now you are aware that gold ETFs are in digital format and these are stored in Demat or investing account. Hence, investors needn’t worry about its security or safety as the product is not in the physical form.
  • You needn’t worry about the purity of gold: Gold ETFs invest in physical gold that meets internationally hallmarked gold standards. This category of gold is usually 99.5 per cent pure.
  • There’s a similarity in pricing: As gold ETFs are traded at the stock exchange, investors, irrespective of their geographical location may invest in these funds at prevailing trading prices. On the other hand, when it comes to buying physical gold, prices may differ from vendor to vendor.

We have distinguished between physical gold and gold ETF based on certain parameters so that you have able to know the major differences between the two:

Parameters Physical Gold Gold ETF
Definition Physical gold can be in the form of jewellery, coin or a bar. It may or may not be 99.5 per cent pure. Gold ETFs invest money in standard gold bullion which has 99.5 per cent purity. Gold ETF investors receive gold in the form of units.
Cost The price of the gold may vary from region to region, and sometimes it might even differ from vendor to vendor. Gold ETF prices are exactly the same as those of international standards due to which transparency in price is always maintained.
Investment If you need to purchase a gold coin, this coin is available in a size minimum of 10 grams. Purchasing this much amount of gold might need a large surplus. One can invest in gold ETF with an amount as low as Rs. 500 per month.
Making charges If you wish to buy physical gold in the form of jewelry, there are always making charges involved. These making charges are usually high and might fluctuate from one vendor to another. Since you purchase gold in electronic format, there are no making charges involved while purchasing gold ETFs.
Returns While selling physical gold, you may or may not get the same amount which you paid while purchasing. Whatever the current price of gold is traded at the stock exchange
Account Buying physical gold doesn’t require a Demat account Investors need to have a Demat account for buying and selling gold ETFs


Now that you know the difference between physical gold and gold ETFs, which type of investment are you planning to make?

Elyse Sanford