Unlike physical gold, ETFs can be bought just like stocks on a stock exchange. ETFs give investors access to gold while avoiding the costs and inconveniences such as premiums, storage costs, and security risks associated with holding physical gold. Dhanteras, the first day of Diwali in India, is considered cheap to buy gold and silver. Buying gold on cheap occasions is part of the Indian tradition.
Investments in gold can take the form of physical gold, government gold bonds, gold ETFs, and gold funds. Gold ETFs are basically exchange-traded funds that invest in gold. Gold ETFs and physical gold are different forms of investing in gold. Both lead to the same end goal, which is portfolio diversification.
However, both differ in terms of security and liquidity. While gold ETFs are safer, physical gold is generally accepted. Physical gold is very liquid compared to all other forms of gold. Gold ETFs are for investment purposes only.
While physical gold is intended for both investment and consumption. Buying and selling gold ETFs (investment funds) is more transparent. At the same time, physical gold poses no counterparty risk. It is therefore important for individuals to consider their needs and goals before choosing a form of gold investment.
Although their investors never own the actual gold, these trusts hold physical gold. As a result, ETFs experience the same changes in value as physical gold. There are various gold ETFs you can invest in, but you should expect to pay a commission and fees per trade based on your fund’s expense ratio. On the surface, buying an exchange-traded fund backed by gold bars seems harmless.
An ETF (or ETN, Exchange Traded Note) is a security that tracks an index, sector, commodity, or other asset, but can be bought or sold like a stock. Even worse, the reason you own gold is to protect yourself from financial and economic uncertainty — and you could lose that advantage if you own paper gold, which comes with all types of counterparty risks. According to Chintan Haria, Head of Product Development %26 Strategy at ICICI Prudential AMC, investors considering buying gold for investment purposes on this Diwali can consider gold ETFs. Storing your gold at home is cheaper, but there’s a greater chance that your investment will be lost or stolen.
In recent years, however, the government has introduced alternatives to physical gold in the form of gold ETFs and government gold bonds. Gold is a rare natural resource, so there is only a limited amount, and the new supply is limited compared to the amount already in circulation. You can’t do these things with a gold ETF, as most don’t allow gold bars to be delivered to retail investors (and the few that do are costly and slow). Imagine logging into your account and finding out that the price of gold is rising but the price of your gold fund is falling.
Any type of crisis could put increasing pressure on gold ETFs to the point that they are no longer able to provide security against the very events they’re supposed to protect us from. According to Chintan Haria, investors can consider allocating 5 to 10% to gold via the Gold ETF or Gold FoF in their portfolio from an allocation perspective. There are various ways to invest in gold, and two of the most popular options include physical gold and exchange-traded funds (ETFs).
