Let’s look at the two main ways to purchase Gold in India:
1) Physical gold via jewelry or coins
2) Gold mutual funds or ETFs
Why bother about the form of Gold you purchase?
If the purpose is consumption, for e.g., a wedding, you should buy gold physically.
But if you are looking to accumulate gold for instance for the marriage of your children or for investment purposes, you should consider buying gold ETFs.
Buying gold is a hassle
You have to check numerous things before buying gold jewelry or gold coins such as hallmark certificates for purity and physically look for an choose the right piece which suits your needs. There is then a 20%-30% making charge involved. In comparison buying gold via an ETF is as simple as buying any other mutual fund. You can even buy just 1 unit of gold whereas even the smallest piece of jewelry weighs a minimum of 4 grams.
Gold ETFs are economical and easily liquefiable
The only cost investors have to consider when buying gold ETFs is a minimal fund management fee of around 1%. ETFs can be easily sold back at prevailing market rates. In comparison, when selling physical gold in the market you stand to lose up to 25-30% of your initial investment as making charges are discounted for and typically jewelers buy back gold at 2-3% below prevailing market rates.
Tax benefits
After an ownership period of 3 years, physical gold attracts wealth tax and VAT, neither of which happens when you own ETFs.
Storage is expensive
Buyers need to find safe physical storage such as bank lockers to store their gold and this may prove expensive. But for Gold ETF, storage is taken care of by the fund. Investors hold the gold ETFs in a demat account, and don’t need to bother about its security as in the case of physical gold.
Quality Assurance of Gold ETFs
Gold ETFs are backed by gold of 99.5% purity, so investors can be assured about the quality of gold.
Do not be misled into purchasing the wrong form of Gold. Do consider your investment purpose carefully before heading out to purchase the shining metal.