Gold ETF vs physical gold – Which is the best investment option?

Gold ETF vs physical gold – Which is the best investment option

Gold ETF vs physical gold – Which is the better investment option?

When gold prices are climbing up, how to invest in gold ? Should we invest in Gold ETF or invest in physical gold. What is a gold ETF ? Why it is becoming popular day by day. Today we would discuss about the advantages and disadvantages of both these investment options.

Investing in physical gold

Physical gold is purchased for several reasons. It could be for marriage, could be for the ornaments etc.

Gold ETF vs physical gold – Which is the best investment option

Advantage of buying physical gold:

  1. Physical wearing: Most of the investments in physical gold are done for ornaments to wear.
  2. Liquidity: One can sell physical gold easily in open market.
  3. Long term appreciation: In the longer run, gold has proved to be a good investment option as the gold prices are increasing year on year. In the last 5 years, gold has given 24% annualized returns.

Disadvantage of buying physical gold:

  1. Loss due to theft: One of the main draw back in investing in physical gold is loss due to theft.
  2. Wastage due to wear: When you intend to sell the physical gold ornaments, the wastage of 4% to 8% would be deducted from the sale amount.
  3. Locker charges: If you are accumulating physical gold, it may not be safe to keep at home, hence you may need a bank safe locker. However for safe lockers, you need to pay the annual charges which would be a burden every year.

What is a Gold ETF?

An exchange traded fund is an instrument which tracks the underlying asset. It could be an index stocks or it could be a particular commodity like Gold. A Gold ETF is one which tracks the commodity gold. Price of the Gold ETF is directly affected with the change in the gold price. There is no big variance when you want to choose the best Gold ETF schemes as all such schemes track only gold as underlying asset.

Advantages of investing in Gold ETFs:

Gold ETF’s have become popular these days due to various features associated with it.

  1. Gold ETF’s in electronic form: Unlike physical gold, the Gold ETF’s are issued in the electronic form. You need to have demat account to buy these Gold ETF’s.
  2. Safe investments: Since the gold ETF’s are in electronic form, they offer safety of the investments. There is no loss due to theft.
  3. Price transparency: Gold ETF’s are traded in stock exchanges like any other stocks. Hence you can track the gold etf prices and you can sell them whenever you want.
  4. No assurance required for gold purity: When you invest in physical gold, you need to be worried about purity of gold. When you invest in Gold ETF’s, you need not worry about the purity as you are not purchasing the physical gold.
  5. Affordability for small investors: Gold ETF’s can be purchased as low as 1 gram which can be afforded even by small investors.

Disadvantages of investing in Gold ETF: There are few disadvantage of investing in investing in gold ETF’s.

  1. Commission/transaction charges: Like any other stock trading, when you buy or sell gold ETF’s on stock exchanges, you need to pay commission/transaction charges to the broker. The commission would depend on the broker and which ranges around 0.25% to 0.75% on the purchase or sale value.
  2. Annual maintenance charges: You need to pay annual maintenance charges for your demat account. If you are using your demat account for stock trading, it may not be a burden for you. However if you are using it only for Gold ETF’s, it would be an additional charges for you.

There are various gold etf schemes like GS Gold BeES, R*shares gold ETF,  SBI Gold ETF, Kotak Gold ETF, UTI Gold ETF, Quantum Gold ETF etc., There are no major variances in the returns as they all invest in a single commodity i.e. gold.

Conclusion: Investing in physical gold and Gold ETF’s have their own advantages and disadvantages. Though there are various ways to invest in gold, invest wisely based on your requirement. However if you are looking for buying gold only for investment purpose, my suggestion would be in investing in Gold ETF’s with its variety of advantages comparing to physical gold.

Readers, what is your view about investing in gold ETFs? Please give your comments


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  • Santosh

    Hi Suresh,

    Have started investing in SBI Gold ETF  from last month through SEP on monthly basis  from ICICI direct .wanted to have a plan for (5-10 years) SEP .However was told the maximum tenure is years for SEP  . Post that i suppose again have to renew .Not sure why they have kept it limited for 2 years only or if my understandng is incorrect.

    Also it seems the 2014 , gold prices are likely to fall as per few articles . So shold i still be continuing with GOLD etf investements , since i am looking for long term .(5-10 years)

    Wishing you a very happy new year!!




    • Hi Santosh, Happy new year. Even I had similar problem, but let us not worry. We can always create SEP in few minutes in ICICIDirect. Regd your query on fall of gold prices. What kind of investor you are ? As per your comment you are long term investor. What happens if gold price comes to Rs 2,500 ? You are not going to sold and book losses. What happens if gold price goes to Rs 3,500, you are not going to book profit as you are long term investor. What happens if you keep getting at less than Rs 3,000 for next 4-5 years and after 10 years it goes to Rs 5,000. I would be personally happy and always look for such opportunities to buy at lower prices. Keep investing. 

  • DG

    Do u have a post written on "the procedure to invest in Gold ETF".. like.. the actual procedure from starting and G-ETF, accumulating (buy), and possibly converting this ETF to physical gold (coins preferrably)?

    I am inclined towards SBI;s G-ETF


    • Hi Deepa, There is no major process to invest in Gold ETF’s. If you know which Gold ETF to buy, you can buy through your demat account like any other stock. However there is no option to convert the Gold ETF’s to physical gold. You can buy e-gold through national spot exchange where these are maintained through electornic form and when you want you can redeem through physical gold. However this is available in only from a few major cities and not across India.

      • DG

        Thank you Suresh,

        I udnerstand the part about "buying via Dmat Acct". 
        On one hand you say "there is no option to convert to physical gold", while you also say "when you want you can redeem through physical gold". I dont understand.
        Does this mean, I redeem my ETF >> Take the money >> Buy physical gold out of  the redeemed-money?? Is it so?
        (First time prospective investor, so please pardon if i am asking the obvious)

        • No Deepa, What I said is there is an another option called e-Gold where you can buy electronic gold from National Spot Exchange Ltd. When you want gold, you can redeem/get physical gold from your e-gold account. However they are serving in only few cities. 

          • DG

            Thanks Suresh, Good to know about e-Gold. Do you have any posts for beginers in this regard? Links would be helpful too.. 🙂

          • Deepa, I just noticed that I have not covered e-gold as part of my blog articles. I would cover this in next 2 weeks time. Thanks for your continued suggestions to improve our blog.

  • Najeeb Khan

    Hello , 

    I am new to investement , I have a family of four both sons and wife , I have 90lakhs with me , I am 33 year old . I dont know how to invest wisely . I am working in Midlle East but got my PR approval to australia . I will be going to australia and getting the Australian passport in 4 years of time , after that I will never leave my India . Each and evey day I will remember my place and curse my self what the hell I am doing here . anyways I want and option which gets me nearly 50k and maintains the inflation also for future years. Please show me the way.

    • Hi Najeeb, I hear you. You are very eagre to come back to India and you will. The investment option depends upon the risk capacity. If you are moderate risk taker, invest in diversified or large cap mutual funds like ICICI Pru focussed blue chip fund, UTI Opps fund etc., For low risk, you should invest in debt mutual funds like SBI Dynamic fund and bank fixed deposits. If you are risk taker, invest in good stocks You can seen my articles on best stocks for more info. All the best.

  • Anuj

    Hi ,

    I am new to investments , say if I can invest upto 5k bucks per month , would gold-ETF be a better option , or investing it in my parents' name (they bring added benefits of senior citizen ) .



  • plaban majumder

    i want to know the procedure how can i maximise my income upto 55000 of rupees 10000 in just 5 days.

    my contact no. 9818594304.

    pls reply me sir.


    • Majumder, You are expecting too much. If 550% returns are expected that too in just 5 days, every month there would have been thousands of crorepathis in India:-)

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