It does become slightly difficult to choose the best investment option because of varied features that are prominent across all the financial instruments. The same thing applies to gold and gold Exchange Traded Funds (ETFs) as well. Gold has always been an attractive investment option for bullion traders across the country. So when it is so good, then why the term gold ETF, a type of mutual fund instrument, is doing the rounds with each passing day. Thus, there is a need to compare the two in terms of advantages and disadvantages. Let’s look at the merits and demerits of both gold and gold ETF, which will help you choose the alternative that meets your investment objectives.
Advantages of buying gold
- You can always sell your gold investments in the open market
- Gold has proved to be a profitable investment option as the prices of the yellow metal has risen over 17% in the 5-year period from mid of 2011 to mid of 2016
Disadvantages of buying gold
- Any wastages due to wear and tear will result in deduction from the sale amount
- When you accumulate gold, it may not be advisable to keep the same at home. So, you should look for a bank locker. But it bears some charges and after a certain point of time, it is possible you may not like to pay for the locker facility to continue.
Gold ETF is a mechanism by which you can be the participant of the gold bullion market. The investment in Gold ETFs gets converted into papers without any physical delivery of the yellow metal. Like shares, you can buy or sell Gold ETFs on the stock exchange. Gold GTF value depends on the prices of the yellow metal. As gold prices surge, the ETF value will rise and vice-e-versa.
Advantages of gold ETF
- As gold ETFs are issued electronically, you need to open a demat account to buy the same.
- ETFs are considered a safe investment option as they are issued electronically.
- Like stocks, gold ETFs are also traded on the stock exchanges. So, it gives you a chance to track the prices of gold ETF and also enable you to sell these investments whenever you want.
- With gold, one has to check the purity. But with gold ETF, you can do away with purity as you are not buying or selling the physical gold.
- You can purchase gold ETF with quantity as low as 1 gram, which is affordable in the case of even small investors.
Disadvantages of gold ETF
- Transaction Charges–When you buy or sell gold ETFs on the stock exchanges, you are required to pay commission or transaction charges to the broker. These charges vary from broker to broker. However, the charges would be ranging within 0.25% to 0.85% of the purchase or sale value of the ETFs.
- Annual Maintenance Charges–Yearly maintenance charges are also levied on the demat account of gold ETFs.
Popular Gold ETF schemes
- SBI Gold ETF
- Kotak Gold ETF
- UTI Gold ETF
- Quantum Gold ETF
- GS Gold BeES
- R shares Gold ETF
Choose the option based on the information displayed above and your requirements. If you are purchasing gold for investment purpose, then you can opt for gold ETF as it offers a lot of advantages compared to physical gold in terms of investment.