Gold ETF’s vs. Gold, the Better Deal

Jan 07, 2017 5:30 IST 1936 views

In India, gold has a significant cultural and psychological importance. From marriages to financing children’s education, we use gold as a financing source. Due to such wide range of benefits gold has been one of the most sought after financial investments making India the 2nd largest importer in the world. There are 2 ways to make investments in the yellow metal i.e. through physical gold and through gold ETF.

Refer to the table below for a detailed distinguish:

 Gold (physical gold)Gold ETFs
MeaningIts gold available in form of coins, biscuits or jewellery.
The quality/ purity and weights lead to differences in prices.
Gold ETF’s are open-ended exchange traded funds
investing in standard gold bullion (99.5% purity).
The value of the ETF unit is linked to
the price of the physical gold in the market.
PriceThe physical gold pricing depends from jeweller to jeweller.
One may also use personal relations to get a bargain on the prices.
They’re priced through an international mechanism
and provide a great deal of transparency.
InvestmentStandard denomination is 10 grams, and multiplies from there.
Even at the lowest denomination, it requires a heavy investment.
Gold ETF denominations start from 1 gram
and thereby more affordable.
ChargeMajor drawback of physical gold investment
is making charges (jewellery) and holding charges (lockers/ security).
It has expense ratio of 1% per year and ~0.5%
or less brokerage on the transaction amount.
Taxation1% wealth tax over individual tax if
the value of one’s gold value exceeds Rs 30 lakh.
No wealth tax applicable.
capital gain tax
Investor must pay a short term capital gain tax
if physical gold is sold within 3 years from the buying date.
Similar to physical gold.
capital gain tax
If sold post 3 yrs, investor pays a
capital gain tax of 20% on profit post indexation.
Similar to physical gold.
LiquidityFor an investor, bank and jewellers are the parties to a transaction.Gold ETF are traded on NSE and BSE.
ReturnsActual return = Current price minus buying price and making.Actual return = Gold ETF current price
on stock exchange minus brokerage and buying price.
Demat accountNot required.Demat account required.


An investor should invest in ETF rather than physical gold because it helps one avoid wealth tax and other jewellery charges. ETF can be traded online from a device thereby, provide ease of transaction compared to physical gold. With growing digitisation and ease of transaction, ETF will provide you all the benefits of holding gold and also provides further support to accounting transparency of the entire system.

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