Understand in detail – physical gold & Gold ETFs

Exchange traded funds (ETFs) are mutual funds that can be traded at their current market price during live trading hours. These are the only type of mutual fund schemes that are publicly listed on the stock exchange like company stocks. Now one can even buy gold with exchange traded funds. Thanks to the introduction of gold exchange traded funds, it is now possible to invest in gold as an asset class without having to hold it in physical form. But why should investors choose gold ETFs over physical gold when the latter has been the traditional way of investing for all Indians?

What are gold exchange traded funds?

Gold ETFs are open ended mutual fund schemes that invest in gold bullion, gold reserves and whose performance is based on the movement in international gold prices. One unit of a gold ETF is equivalent to one gram of gold. This means that the minimum investment of a gold ETF is equivalent to the value of 1 gram of gold. Like other company stocks, gold exchange traded funds are listed in India. Investors can invest in gold ETFs on both National Stock Exchange (NSE) as well as Bombay Stock Exchange (BSE).

Why are gold ETFs better than physical gold?

A Gold ETF’s minimum investment is a single unit, which is equivalent to one gram of gold. Gold ETFs can be bought and sold on the exchange during live trading hours as their current market price is open to the investors. If one has to buy physical gold, they will have to go to the jeweler to purchase the commodity. They cannot do it the way a gold ETF investor can.

Here are some of the other differences between investing gold in physical form versus buying gold ETFs:

Particulars Physical Gold Gold ETFs
Understanding the concept The purity of physical gold is subject to the vendor you are buying it from. It may not be 99.5% pure as claimed by the seller A gold ETF is open ended exchange traded mutual fund scheme that invests in gold bullion which is usually of 99.5% purity. A gold ETF investor owns units of an ETF whose value is determined by the fluctuating  international gold prices.
Value Price value of physical gold is not determined and can vary depending on where or whom you buy it from Regardless of where you buy gold ETFs from, their prices are determined by international gold standards. Transparency is always maintained when investing in gold ETFs
Investment type Physical gold is available in the form of gold coins, bars, biscuits and is usually available in the standard denomination of 10 grams. This means that one needs to have a large investment sum invest in gold in physical form ETFs prove to be an affordable investment option than the two as their one unit is equivalent to one gram of gold. As mentioned earlier, the minimum investment in a gold ETF is one single unit
Liquidity In case of a financial emergency selling physical gold can be a bit difficult especially if you want to sell it during odd hours or during a pandemic or a lockdown as buyers may not be easily available. Also, there is no guarantee that you will get the same value for the gold as it was when you bought it Gold ETFs offer high liquidity as one can easily sell them. The sum equivalent to the units sold is almost immediately credited to the investor’s registered savings account.
Expense ratio Physical gold does not have any expense ratio Expense ratio is applicable

Before making an investment decision, seek professional consultation.

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