Gold has always been seen as a sign of wealth and safety in Indian culture. It’s a shiny metal we’ve seen passed down through generations, from grandmothers’ lockers to festive gifts.
Beyond the traditional investment of physical gold, an alternative form of gold investment is catching attention: Gold Exchange Traded Funds (ETFs). The question is what’s better for you: the age-old physical gold or the modern Gold ETF? Let’s explain it in a clear and easy way.
Investment in Physical Gold
Physical gold has emotional value. Owning it feels real; it plays a strong role in culture and tradition. But investing in physical gold brings extra costs and challenges. You have to worry about purity, storage, insurance, and making charges, which can go up to 10-30% of the purchase value.
Households hold over 25,000 tonnes of gold, mostly in physical form. This large number highlights investors’ preferences for physical gold.
Investing in Gold ETFs
Gold ETFs involve investing in an ETF that tracks gold’s value as per the market rate. You don’t get the gold in your hands, but you get the value of gold in your portfolio. Gold ETFs are traded on stock exchanges and are backed by actual physical gold held securely by the fund houses. The best part? No worries about storage or theft.
In recent years, Gold ETFs have shown a rise in demand, especially among younger investors. Gold ETFs grew by 33% in managed assets from March 2023 to March 2024, showing more people choosing digital gold investments.
One popular option among investors is the HDFC Gold ETF, which is known for its ease of access and transparent pricing. At present, its NAV and AUM stand around Rs. 82 and Rs. 8793 cr, respectively.
Cost & Convenience Comparison
When you buy physical gold, especially jewellery, you’re also paying for making charges and GST. If you try to sell it later, you might not get the full value back.
With Gold ETFs, there are no making charges. You only pay a small expense ratio (typically under 1%) and brokerage, just like in stocks. Here’s a quick breakdown:
- Physical gold: Costs ₹1,000-₹3,000 annually for storage, not including insurance.
- Gold ETFs: Low expense ratio of less than 1%, no storage fees.
That’s why Gold ETFs are attracting digitally savvy investors looking for better control, lower costs, and more flexibility for their investments.
Which One Suits You?
If your goal is based on gold’s cultural or emotional value, such as jewellery for a wedding or a gift; physical gold still holds charm. But if you’re looking to invest in gold for returns, security, and convenience, Gold ETFs are a smart, modern choice. They give you the same benefit from gold prices without the trouble of storing it.
Analysts expect gold prices to rise by 8-10% due to global inflation and demand. Investors can benefit from this price increase by investing in gold ETFs easily and within a few minutes.
The Bottom Line
Both physical gold and Gold ETFs have their own advantages, but when it comes to investment, Gold ETFs offer more flexibility, lower costs, and better liquidity. If you’re looking to invest wisely, Gold ETFs could be a suitable choice.
With gold prices expected to rise, now is the perfect time to make your move and secure a more efficient, cost-effective investment in gold. However, before investing, analyze your overall portfolio and check your risk tolerance level to make an informed decision, be it equity, gold, or ETFs.