Gold ETF vs Sovereign Gold Bond vs Physical Gold - Explained

Know what is the difference between gold ETF, gold bonds and physical gold. Read to choose which option is best for you for gold investment!

22 Aug,2022 12:25 IST 107 views
Gold ETF vs Sovereign Gold Bond vs Physical Gold - Explained

The numerous investment products related to gold include Gold ETFs, Sovereign Gold Bonds and Physical Gold. It is essential to understand each of them before making an investment decision. Here is a guide to the three most widely utilized gold-related investment products.

What Are Gold ETFs?

Gold ETFs are Exchange-Traded Funds that track the domestic prices of physical gold. These funds create a basket of gold bullion and are passive investment instruments based on gold prices. Similar to general Exchange-Traded Funds, investors can invest in Gold ETFs through a Demat account.

One Gold ETF is equivalent to one gram of gold. These ETFs are listed on various stock exchanges, such as the National Stock Exchange and the Bombay Stock Exchange and follow a trading process similar to equities.

Gold ETFs do not deliver physical gold to investors but are the only way to make profits based on the price difference of physical gold on the market. When sold, Gold ETFs provide the cash equivalent to investors based on the current domestic price of gold.

What Are Sovereign Gold Bonds?

Sovereign Gold Bonds provide an alternative to purchasing physical gold as a tradable security. Bonds are debt instruments that provide the holder with interest and the promise to repay the principal at maturity.

The RBI issues Sovereign Gold Bonds (SGB) on behalf of the Indian government. Investors have to pay the issue price in cash and can redeem the bonds in cash at maturity. Sovereign Gold Bonds provide regular interest payments to the bondholders and repay the investors based on the current price of gold and the held value.

Sovereign Gold Bonds are denominated in multiples of grams, with a minimum of one gram and a maximum of 4Kg as a viable investment. Furthermore, Sovereign Gold Bonds pay an interest of 2.50% per annum semi-annually on the nominal value with a tenure of 8 years.

What Is Physical Gold?

Physical gold is the most traditional way to invest in gold, either for personal or investment purposes. Physical gold creates the basis for gold prices in India and is the underlying asset for both Gold ETFs and Sovereign Gold Bonds. Investors buy physical gold from local jewellers in the form of jewellery, gold bars or gold coins which are then stored at home or in safe lockers.

Investors worldwide consider physical gold an asset to effectively hedge against investment losses as the price of physical gold steadily rises over time. One of the most important benefits of physical gold is its use in attaining a gold loan based on the gold loan interest rates.

Physical gold can be effectively pledged as collateral by lenders to take a gold loan. The gold loan interest rate depends on the purity of the gold, and the loan amount is offered based on the total value of the gold. The pledged physical gold is kept safe by the lenders during the loan term and given back to the borrowers after the loan repayment is complete.

Do You Have Physical Gold? Get A Gold Loan With IIFL Finance

IIFL Finance loan against gold offers instant funds based on the value of your gold within 30 minutes of application. IIFL Finance loan on gold comes with the lowest fee and charges, making it the most affordable loan scheme available. With a transparent fee structure, there are no hidden costs you have to incur after applying for the loan with IIFL Finance.


Q.1: Do I need a Demat account to get a loan against gold?
Ans: No. You do not need a Demat account or a credit score to get a loan against gold with IIFL Finance.

Q.2: What documents are required for IIFL Finance Gold Loan?
Ans: Documents required are Aadhar Card, PAN Card, Driving License, Passport, Ration Card, Electricity Bill, etc. Visit the IIFL Finance gold loan page to get the complete list of documents to submit.

Q.3: What is the gold loan interest rate?
Ans: Gold loan interest rate is the amount charged by lenders over and above the offered loan amount.

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