‘Gold’ has always been a precious commodity for ages. Even today it is considered the safest and profitable way of investment. Investing in gold is looked at as an investment that will guard one against #inflation, currency devaluation, or in case of a #economic crisis. There are two ways in which a willing investor can trade with gold – #physical gold or #Exchange Traded Fund (ETF). This article discusses both physical gold and gold #ETF in detail with highlights. In the end, a FAQ section has been provided for the most common questions like – what is best – physical gold or #ETF? Should I buy physical gold or ETF? Can #ETF be kept as collateral against a loan? Which is the best and cheapest Indian ETF to buy in 2020? Etc.

Physical Gold

For physical gold, you just need to walk into a jeweler shop, dealers, government or private mints, etc. You can buy gold in form of jewelry, coins, or biscuits.

Highlights of trading physical gold –

• The price offered by different sellers may vary and you have to search for the best deal.
• Gold is valued on the basis of purity rather than weight.
• Total cost includes a number of other charges like – #making charges, insurance transaction fees, etc.
• If you are willing to sell the physical gold you will have to do so at 30% to 40% down its #current market value.

The buying and selling charges levied on physical gold may not be worrisome for a small investor but could be a great concern for big investors.

Gold ETFs

Gold ETF is like trading in the stock market at the same rate as gold. In #ETF, the investor is relieved from the burden of storing charges, making cost, etc as in physical gold. It is an option for the investor to invest in gold without buying its physical form and thereby eliminating the fear of theft or robbery. The security risk of holding physical gold is also absent here. Understand ETF as a dematerialized form of physical gold.

Gold ETFs invest the investors’ money in #gold bullion of 99.5% purity and it is traded just like the share of any other company.

Some highlights of Gold ETF-

• To trade in gold ETF, a minimum buy of #1g of gold is required.
• Purchasing or selling is carried out exactly as #equities.
• You can buy and sell at any time when the market is open.
• Buying or selling just takes a few simple steps.
• Trade from anywhere in the country without price differences because it is exempted from #GST.
• Daily gold rates are publically available at the #stock exchange website.
• During buying and selling, all you might have to pay is just a 0.5 to 1% brokerage fee.
• Gold #ETFs held longer than a year are liable for long term capital gain benefits.
• Exemption from #securities tax or #wealth tax.
• Gold ETFs don’t fluctuate as often as #equities and can hedge equity losses.
• Gold ETFs can also be used as security #collateral for getting a loan.

Gold ETFs are a safe and convenient option to invest in gold just like equities. Some #brokerages even offer commission-free online trading for specific ETFs. Moreover, you can sell the gold ETF for the exchange of physical gold; however, the rates will depend on the gold purity you opt for.

There are a lot of affordable gold ETF funds in terms of expense ratio. For example – #iShares Gold Trust (IAU) has an expense ratio of 0.25% and net assets above $24 billion; #SPDR Gold Shares (GLD) has an expense ratio of 0.40% and net assets of $62 billion; #GraniteShares Gold Trust (BAR) has an expanse ratio of 0.18% and net assets of $967million.

Conclusion

Gold ETF is a safer, efficient, and convenient way to trade with gold, as compared to trading gold in its physical form. Lots of charges – making a charge, storage, insurance, and others apart from the threat of theft, makes trading physical gold a risky matter.

FAQs on Physical Gold and ETF –

Q1) Is gold ETF better than physical gold?

Ans – Yes, gold ETF is better than physical gold because there are no #making charges, #wealth tax, more #liquidity, convenient and fast transaction, etc.

Q2) Are gold ETFs backed by physical gold?

Ans – Yes, gold ETFs back their assets by storing physical gold of 99.5% purity with a custodian bank.

Q3) Why gold ETFs prices are different from physical gold?

Ans – Gold ETF is much cheaper than physical gold because of the absence of high buying and selling charges, unlike in the case of physical gold. Moreover, there is no threat to security or fear of theft in the case of ETFs.

Q4) Is gold ETF safe?

Ans – Absolutely! Investment in gold ETF is a safe investment to hedge against inflation, currency fluctuation, LTCG Tax, or Long Term Capital Gain Tax and no trouble to actually physically store the gold.

Q5) Which is the best gold ETF in India?

Ans – The top five gold ETFs in India are UTI Gold ETF, HDFC Gold ETF, ICICI Prudential Gold ETF, IDBI Gold Fund, and Invesco India Gold Fund.

Q6) Which is the cheapest gold ETF to invest in 2020?

Ans – Invesco India Gold Fund with an expense ratio of 0.49.

Q7) Can gold ETF be converted to physical gold?

Ans – Yes, you can get physical gold in form of biscuits in exchange for your ETF.

Q8) What is the minimum gold amount to be bought for trade in gold ETF?

Ans – In gold ETF you have to buy a minimum of 1 unit of gold that is 1g of gold.

Q9) Are gold ETFs listed on the stock exchange?

Ans – Yes, gold ETFs are listed in both NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). However, to trade gold ETF it is mandatory to have a DEMAT account.

Q10) Do gold ETFs pay dividends like the shares of other companies?

Ans – Dividends are available only for the equity-based gold ETFs. For gold ETFs holding physical gold, no dividend is paid.

Q11) Can a loan be taken keeping gold ETFs as collateral security?

Ans – Yes, gold ETF can be put as collateral while borrowing loans from financial institutions.

Q12) Can I sell gold ETF anytime?

Ans – Yes gold ETFs can be bought or sold anytime when the market is open.

Q13) Do the gold ETF rates vary from one state to another in India?

Ans – No! Gold ETFs can be bought and sold at the same price listed on NSE/BSE website, all over India.

Investing Daddy