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Gold ETF vs Physical Gold


Gold ETF vs Physical Gold


Gold has been preferably the most common way of investments for all the Indians because of its authentic performance in India. The Indians have the mentality to invest in gold commodities so that they can save the commodity for their child’s marriages. And these facts make India the second-largest importer of the yellow gold metal in the world.


These days the investment in the gold can be done in the two different forms. The two different forms of investment in gold are

       Investment in the physical form of the gold

       Investment through gold ETFs


What Is An ETF?


Got married and started a family with their children, well they would be ETFs. ETFs stand for exchange-traded funds. ETFs have inherited traits from each parent just like index funds. Most ETFs are passively managed diversified and low-cost and just like stocks. ETFs are bought through a brokerage account and trade on an exchange at any time during the day. This mashup of desirable traits has made ETFs increasingly popular investment tools. There are over 6,000 ETFs on 60 exchanges around the world with about 3 trillion dollars in assets. 


How Does ETFs Work?


Here's how they work. Imagine ETFs are baskets and this is the important part. Each basket holds actual securities. So for example, a bonds basket could be packed with a collection of government or corporate bonds and the solar stocks basket holds real shares and companies that make solar panels. There's even a gold basket backed by you guessed it gold bars sitting in a vault. 


Now let's say you had $1000 and you wanted to buy gold. The problem is $1000 isn't going to buy a whole lot of gold only about an ounce. it's really difficult not to mention risky to store your gold what would be a lot easier and safer is to invest your thousand dollars in a gold ETF.


when you do that you're not buying the gold itself you're buying shares of a big basket of gold shares. The trade just like stocks and those are the two big attractions of ETFs. you don't need to be wealthy to invest in them and they are simple to buy sell and own another draw. ETFs rarely incur yearly capital gains taxes as mutual funds can.


you'll only pay taxes when you sell your shares in the ETF for a profit it's no wonder that ETFs have exploded in the US alone ETFs trade about 20 trillion dollars worth of shares a year. which is more than the US GDP. it seems clear that ETFs are going to be part of the investing universe for many years to come.


In simple words, ETFs (Exchange Traded Fund) are funds that track down the indexes such as CNx nifty or BSE Sensex, etc.


An ETF is an exchange-traded fund which unlike the other regular mutual funds trades like a common stock on a stock exchange. The essential units of the ETF are usually bought and sold by the broker or any agent or any recognized stock exchange person. The units of the ETF are mentioned in the stock exchange and NAV varies as the market fluctuates in different domains.


As the units of the ETFs are listed the stock exchange only they are not bought or sold as any open and mutual, or equity fund. An investor can simply buy as many units as he/she desires without any restrictions through the exchange.

Whenever you buy the units of ETFs, it means that you are buying shares. These shares of a portfolio are going to track the yield and return of its native index.


What Is Gold ETF?


Gold ETF, or Exchange Traded Fund, is aware based Mutual Fund that invests into assets like gold. These trade exchanged assets perform like individual stocks and are exchanged likewise on the stock trade.


ETFs are used to represent the assets and for this case, physical gold both in dematerialized and paper form. 

An investor investing stock rather than the actual metal and once they are traded they immediately get credited with the unit’s equivalent cash amount instead of the physical gold metal.


Why Gold ETF?


According to the experts, the ETFs are great ways to invest in gold. And one of the best options for people who don’t want any gold storage hassle or doubts regarding the purity of the gold. Experts also sat that with ETFs investment people are more likely to great a greater advantage in tax benefits too.


Advantages Of Investing In Gold ETFs And why We Should Opt For Gold ETF

Mentioned below are some of the exclusive benefits that you can get once you start investing in gold ETFs rather than the physical gold.

       The purity of the gold is guaranteed. There are no doubts regarding the purity as the units are backed by physical gold of high purity

       Listed and traded on the stock exchange

       Transparent and real-time prices which give a clear picture of the fluctuations of the gold process in the market

       ETFs are accepted by banks as collaterals which makes the loan processing easier

       No entry and exit reload

       One of the best advantages of investing in gold ETFs is that there is no fear of theft. All the physical units are safe and secured as they are stored in Demat

       The ETFs assets are treated as the long term capital source

       No Vat, no sales tax no wealth tax, and also you are also not charged for security tax too


Pros And Cons Of Physical Jewelry And Gold ETFs





       Once you invest in gold ETFs you do not have to give any other surplus charges like making charges. This eventually helps out in saving more money with greater profit and a great investment

       There are times when the buyers or banks refuse to buy the gold bars, chains, or any physical form of jewelry. But when it comes to gold ETFs you can sell it off to any broker any time you want

       You are tension relieved. As the tension and the thought of keeping your physical jewelry safe, doesn’t exist. As there is no theft of stealing at all

       According to the trend, whenever the dollar goes weak the rates of gold tend to raise much higher. This can indirectly profit you and vice versa

       When you plan to buy a physical form of gold, you also need a bank locker to keep the things safe which also ends in paying surplus charges. While in ETFs there are no such needs of bank lockers

       Whenever you resale your physical form of jewelry some amount Is deducted by the jeweler or the bank but in the case of ETFs this does not happen

       Gold ETFs have been proving as a great form of investments for short term and medium-term investors as the gold ETFs provide a lot of liquidity

       Gold ETFs are more tax-efficient than the physical form of the gold

       You need to pay wealth tax when you owe a greater amount of physical gold while in the case of ETFs there is no such tax


       If you simply have the picture of you wearing the beautiful piece of gold that you saw then nothing can help you in investing for gold ETFs

       When you try to redeem your gold ETFs they always come in form of cash and not in the physical gold as they are gold contracts and derivatives

       Make sure to agree with the market risks once you plan to invest in gold ETFs. As the market keeps fluctuating

       While you owe gold ETF you cannot ignore the Demat account charges and the annual maintenance that you have to pay related t that

       Make sure to check the performance of ETF once you invest in it

       There are also cases where capital gain tax breaks are applicable to tradition exchange-traded fund but at the same time they do not apply for ETFs


To have a brief study and proper analysis of the comparison below is the returns table of the SBI gold ETFs  ( CLICK HERE TO KNOW ABOUT SBI GOLD ETF ) vs Physical Gold


The SBI ETFs also provide you with different categories of ETFs. These different ETFs have different criteria and requirements and benefits too. You can simply pick according to your choice and requirement and proceed ahead in making the ETF investment. 




Period Invested for

₹10000 Invested on

Latest Value

Absolute Returns

Annualised Returns

Category Avg

Rank within Category

1 Week







1 Month







3 Month







6 Month














1 Year







2 Year







3 Year







5 Year







10 Year







Since Inception








SIP RETURNS (NAV as on 25th September, 2020)

Period Invested for

₹1000 SIP Started on


Latest Value

Absolute Returns

Annualised Returns

1 Year




14.65 %

28.06 %

2 Year




32.98 %

29.97 %

3 Year




42.85 %

24.53 %

5 Year




52.24 %

16.81 %

10 Year




63.94 %

9.54 %







 Between a gold ETF versus a gold fund what would you choose and why. Right, so we Indians love gold and the numbers today are like,  Indian gold market is approximately seventy-five lakh crores is the gold market, real estate is 80 lakh crores, the mutual fund is 25 lakh crores, and fixed deposit is 40 lakh crores.

So you can see Google is one of the biggest asset classes and we Indians love physical assets we love gold. But gold is not an asset for wealth creation. In turn, if you look at any asset which can help you create wealth need to have a capital appreciation.

Gold doesn't have a capital. it only works because of greed and fear. If you see the underlying asset which is generally of no interest or dividend and it just comes out of a show yeah. The under mentally fundamental history shows that there is capital appreciation a precision but if you look at the last 30- 40year returns the returns have been between 8 to 9% CagA return.

So they are inflation-linked returns. so it's not a wealth creation asset. This is one myth one needs to break in that gold cannot give you a large double the inflation kind of returns  but you end up taking a lot of risk in gold also because the price is volatile.

Gold should be a part of your portfolio for your social requirement not for wealth creation. Objecting should not be more than 10-15 percent of your overall debt first which is one cardinal rule which we should follow.

Talking about the second thing the ways how can we invest in gold. So there are gold ETFs available and there is a recent couple of years before the sovereign gold bond ( CLICK HERE TO KNOW EVERYTHING ABOUT SOVEREIGN GOLD BOND ) that has come into the market. compare both these products with five different parameters talking about the first parameter is in terms of transaction charges. so the sovereign gold fund is the cheapest available there is no expense in that product

whereas ETF will always have an expense. Liquidity point of view sovereign world fund is an eight-year product and after 50 only liquidity comes in. so there is no liquidity in that in terms of ETF. you always have liquidity available in terms of interest and that is one very interesting feature. two and a half percent interest what this sovereign Goldman generates compared to an ETF in terms of taxability.

Again there is a catch there that sovereign gold fund if you hold it till a majority for eight years it's a complete tax-free product for you in case of ETF you end up paying the debt taxation more than the three-year indexation benefit. one very superior feature about gold ETF is the regular investment and that's where anyone can do a monthly investment planning and all those in a gold ETF compared to the sovereign gold fund which there is no timeline available for that.

Now, with the end of guide you get clear picture abut what are gold etfs and why you should invest in them.










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  1. Great article to go through and understand the difference and plan investments accordingly