Difference between investing in Gold and Gold ETF

In India, gold is usually considered among the most preferred investment options. The yellow metal is a valuable asset, and the purchase of gold is generally done during auspicious occasions and it usually happens in the physical form of gold coins, bars, jewellery, and gold biscuits. Investing in gold is usually considered a secure investment and if required during an emergency, can be liquidated easily. Furthermore, gold investments also help in protecting against inflation and currency devaluation. However, the gains from this investment held for less than three years are taxable as per the investor’s income tax slab rates. In case the withholding period is more than three years, the gains are taxable as per the indexation benefit. 

Exchange Traded Funds or ETFs are primarily known for sharing the attributes of both shares and mutual funds. They are a low-cost means to gain exposure to the stock market and are generally traded in the form of shares. One of the prime features of Exchange Traded Funds is that it’s a low-risk option, replicating stock index and offering diversification across the investment portfolio. ETFs are usually passively managed funds and are listed on all major stock exchanges. Additionally, it can also be bought and sold as required during the equity trading time. ETFs give you the flexibility to trade like buying on margins or selling short. Furthermore, they also grant entry to a host of alternative investment options, which include commodities, international securities, etc.

There are several advantages of investing in Exchange traded Funds rather than going for Mutual Fund. Some of them include lower costs, diversification, tax efficiency, liquidity, and more. Some of the well-known ETF category schemes are: 

  • Index Funds ETF
  • Gold ETF
  • Bond ETF
  • International ETFs, and others.

Gold ETF is an Exchange Traded Fund that focuses on tracking the domestic physical price of gold in the market and has the same value as that of pure 24-carat physical gold. The units of Gold ETF are traded like shares of the company on the stock exchange. If you are an investor, you can buy gold as a financial asset in the form of a Gold ETF. They are a passive investment instrument that invests in gold bullion. There are various benefits of investing in gold ETF. Some of them include:

  • Listed and traded on the stock exchange: One can buy and sell gold ETFs on the stock exchange during market hours.
  • Portfolio diversification: Gold ETFs are a smart way to diversify one’s investment portfolio to mitigate unpredictable market conditions.
  • Simple and transparent trading: Gold ETFs can be bought and sold on the exchange, and the rates are open to the public.
  • Guaranteed gold purity and each unit is backed by physical gold of high purity.
  • Comparatively safer and secure as the units are held in Demat, thus helping you save on locker deposit charges.
  • ETFs are accepted as collateral for loans.
  • No entry and exit load

Gold ETFs are ideal for investors who rely on boosting their income by trading on the precious metal rather than owning the actual commodity. This type of ETF investing provides an opportunity to gain market exposure to the price and performance of the actual gold. Gold ETFs and physical gold are different forms of investment in gold. Both have the same goal of diversifying your investment portfolio, however, Gold ETF is solely for investment purposes.

Exchange Traded Funds are ideally suited for investors who have a lumpsum amount and are deciding on where to invest it. ETFs require a sound understanding of the financial market. Precisely why, it is integral for you to understand your investment goal before choosing either one form of gold as an investment.

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