Physical Gold Vs ETF: Pros, Cons, Taxability, Making Charges, Know All The Differences

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4 days ago

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Physical gold offers emotional value but comes with storage and resale challenges.
Gold has always been a trusted investment in Indian households, especially in the form of jewellery, coins, or bars. But now, many investors are looking at digital options like Gold ETFs (Exchange Traded Funds). Both have their pros and cons, depending on your needs.
Here's a simple comparison of physical gold and Gold ETFs.
Why Do People Still Buy Physical Gold?
Gold jewellery isn't just an investment in India; it holds cultural and emotional value. People buy it for weddings, festivals, and gifts.
Over the last 10 to 15 years, physical gold has delivered strong returns of around 9–10 per cent per year, and even 12 per cent annually in the last decade, according to the India Bullion and Jewellers Association (IBJA) data. These returns have beaten several fixed-income investments.
But Physical Gold Has Drawbacks Too
– High making charges: Jewellery often comes with 15–25 per cent making charges, which are not recoverable on resale.
– Storage issues: You need to store it safely, which can be stressful and costly.
– Resale challenges: Selling gold jewellery can lead to deductions or lower prices, especially if you didn't buy it from the same jeweller.
Gold ETFs are digital investments backed by real gold. They are traded on stock exchanges, just like shares. Launched in India in 2007, they let you invest in gold without worrying about storage or safety.
ETFs closely follow gold prices and have given 8.5–9.5 per cent average annual returns over the past decade. Some funds have even matched or outperformed physical gold returns when held for 15 years.
Benefits of Gold ETFs
– Easy to buy or sell: You can buy or sell ETFs anytime through your demat account.
– No storage hassle: No lockers or physical safety required.
– Low cost: Expense ratios range from 0.3 per cent to 1 per cent, much lower than jewellery-making charges.
– Better tax treatment: If held for over 3 years, ETFs are taxed at 20 per cent with indexation, reducing your tax outgo.
Both physical gold and ETFs are taxed as long-term capital gains (LTCG) if held for over three years. But with ETFs, it is easier to track your investment and get proper value on sale.
On the other hand, physical gold resale might involve hidden charges, and it is harder to prove the original cost in some cases.
What should you choose?
If you are looking for:
– Convenience, transparency, and long-term growth, then go for Gold ETFs.
– Sentimental value, gifting, or future use in weddings, then pick Physical gold may suit you better.
Experts suggest putting 5–10 per cent of your portfolio into gold, and for most modern investors, a major part of that can be in digital formats like ETFs due to ease of use, tax efficiency, and liquidity.
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