Physical gold or digital gold? This is the best way to buy the yellow metal this Dussehra

Gold has been a favored investment across the world for centuries now. It is an inherent part of a lot of investment portfolios. It is not only considered a safer investment in comparison to equities but is also used as a hedging asset.

While for centuries, Indians bought gold in physical forms, like coins, bars, and jewellery, Deveya Gaglani, Research Analyst – Commodities, Axis Securities, believes that it might be time to move on.

The expert noted that in the past few years, investing in gold in a digital form has picked up traction. It has now become the latest trend in India after the Government of India introduced Sovereign Gold Bonds that offer an additional return of 2.5 percent per annum over and above its capital appreciation.

Buying physical gold comes with a lot of risk, the primary being the risk of storage, theft, impurities, etc. Owning gold in digital form eliminates all these risks and uncertainties, he noted. One can invest in gold digitally in forms such as Mutual Funds, SGB, ETF, etc, suggested the expert.

“When it comes to investing in Digital Gold, there are multiple ways to go about it. Gold ETF, Gold MF, SGB, etc., are a few options. All the schemes are beneficial to the investors. The best option of the three depends upon individual preference and their Long-term and Short-term Goals. If investors are comfortable with volatility and want their investment to be liquid, they should go for Gold ETF or Gold MF. If an individual wants to invest in gold from a long-term perspective, the best way is physical gold. Those looking for additional returns and minimum volatility should opt for Sovereign Gold Bonds,” he advised investors.

Recently, Gold prices have been under pressure on the back of easing in the Israel-Hamas war. Gold price on Multi Commodity Exchange (MCX) opened at ₹60,400 per 10 gm levels. But, the MCX gold rate caught buyers’ support and surged to its intra-day high of ₹60,595 per 10 gm levels. In the international market, gold price today is oscillating around $1,974 per ounce levels.

Let’s now understand the different types of investments in gold to make it easier for you to pick.

Gold ETF: Gold ETFs (exchange-traded funds) are passively managed funds and a way more convenient form of investment as compared to physical gold. 1 unit of gold ETF equals 1 gram of gold and the gold prices are reflected without any additional fees. These are traded on exchanges in real-time and unlike physical gold, prices of gold ETFs do not vary state-wise.

In ETFs, the fund manager buys gold and deposits it with the scheme’s custodian. The price of gold in an ETF is the same as that of physical gold and so is the return. Also, the expenses of buying a gold ETF are much lower than that of buying physical gold. It is ideal for investors who are buying gold solely from an investment point of view and not for personal use.

Gold Mutual Funds: Gold mutual funds are open-ended mutual funds that invest in gold ETFs. The mutual fund returns depend on the performance of the ETF, which in turn depends on the performance of gold. The NAV of a gold fund depends on that.

Like ETFs, one unit here does not denote one gram of gold. Gold funds can also be invested in more than one ETF or other securities depending on its portfolio.

Sovereign Gold Bonds: Sovereign Gold Bonds (SGBs) are government securities designated in the form of gold with a basic unit of 1 gram. The Reserve Bank of India issues sovereign gold bonds on behalf of the central government in compliance with the Government Security Act of 2006. They are considered an alternative to holding physical gold.

Individuals who are Indian residents as defined by the Foreign Exchange Management Act of 1999 are eligible to invest in SGB. Trusts, individuals, charitable institutions, HUFs, and universities, are eligible investors. One must note that the interest earned on bonds is taxed according to the Income Tax Act, 1961.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 23 Oct 2023, 05:08 PM IST