When we think of investing in Gold, we mostly go for the Physical Gold option. As, in India Physical Gold is purchased for several reasons, for marriage, for ornaments, for gift etc.
We will discuss few benefits and disadvantages of buying Physical Gold.
Benefits of buying physical gold:
1. It gives you long term returns on investment :
In the longer run, gold has proved itself as a good investment option, as the gold prices have kept increasing year on year. If we look back at last 5 years, gold has given the annualized return of 24% on investments.
2. It has 100% liquidity:
When in need, we can sell the physical gold very easily in the open market
3. Need for physical wearing:
Most of the investments done in gold are for wearing the physical ornaments, in different occasions
Disadvantages of buying physical gold:
1. Loss of gold value due to wearing the ornaments:
When we try to sell the ornaments purchased for physical wearing, the wastage of 6 to 8% is deducted from the selling amount
2. Physical gold theft possibility:
There are chances of theft of the physical gold, which increases the risk of complete loss of Gold Investment
3. Charges to keep Gold secure:
If we keep purchasing and investing in physical gold, we would not take chances to keep all gold at home. For this, we might need a security lockers in banks. For this physical lockers we will need to pay the annual charges, which will be a increased expenses every year.
So now that we know the benefits and disadvantages of owning physical Gold. We will have a look at Gold ETF's
What is Gold ETF ?
Gold ETF (Gold Exchange Traded Fund) is a method to track the Gold commodity. The price of this Gold ETF is based on the current Gold price in the market. The Gold ETF value keeps on changing with the change in physical gold value.
We will discuss few benefits and disadvantages of investing in Gold ETF.
Benefits of investing in the Gold ETF:
1. Transparency in price:
The Gold ETFs are traded in the stock exchange in electronic form, same as other stocks listed in the stock exchange. Hence we can track the prices online and sell them whenever needed.
2. Gold ETFs are traded in electronic form:
Gold ETFs are traded in the stock exchange in electronic form and to invest in gold etfs we need to have access to a demat account
3. They are Safe:
As discussed above, the investment is in electronic form and not the physical gold, there would be no loss and risk of theft in this investment.
4. We can invest small:
Gold ETFs open the doors to small investors, we can invest in Gold ETFs as small as 1grams.
5. Gold ETFs don't need any assurance for the Gold Purity:
When we purchase the physical gold, we always check for the purity of the gold. As that purity decides the value of the physical gold. While in case of Gold ETFs, as they are as good as stocks, we don't need to worry about the purity. The Gold ETFs are traded as same as stocks,
Disadvantages of investing in Gold ETFs:
1. Annual charges for account maintenance:
We need a Demat account in order to invest in Gold ETFs, we need to pay annual maintenance charges for the demat account. But if we are using the same demat account for stock trading, then it will not be a issue to pay the maintenance charges.
2. Transaction or commission charges while purchase or sell:
As mentioned above, the Gold ETFs are traded similar to other stocks on stock exchange. hence we need to pay the transaction or commission charges to the broker(your demat account service provider). The charges will be completely dependent on the broker, which are approximately 0.25% to 0.75% on the total Purchase or Sell value of the Gold ETFs.
Conclusion:
We have seen the benefits and disadvantages of both the physical gold and Gold ETFs, based on that if we are not going to use the Gold as ornaments and are looking the gold as an investment option, the best investment option would be Gold ETFs.
We will discuss few benefits and disadvantages of buying Physical Gold.
Benefits of buying physical gold:
1. It gives you long term returns on investment :
In the longer run, gold has proved itself as a good investment option, as the gold prices have kept increasing year on year. If we look back at last 5 years, gold has given the annualized return of 24% on investments.
2. It has 100% liquidity:
When in need, we can sell the physical gold very easily in the open market
3. Need for physical wearing:
Most of the investments done in gold are for wearing the physical ornaments, in different occasions
Disadvantages of buying physical gold:
1. Loss of gold value due to wearing the ornaments:
When we try to sell the ornaments purchased for physical wearing, the wastage of 6 to 8% is deducted from the selling amount
2. Physical gold theft possibility:
There are chances of theft of the physical gold, which increases the risk of complete loss of Gold Investment
3. Charges to keep Gold secure:
If we keep purchasing and investing in physical gold, we would not take chances to keep all gold at home. For this, we might need a security lockers in banks. For this physical lockers we will need to pay the annual charges, which will be a increased expenses every year.
So now that we know the benefits and disadvantages of owning physical Gold. We will have a look at Gold ETF's
What is Gold ETF ?
Gold ETF (Gold Exchange Traded Fund) is a method to track the Gold commodity. The price of this Gold ETF is based on the current Gold price in the market. The Gold ETF value keeps on changing with the change in physical gold value.
We will discuss few benefits and disadvantages of investing in Gold ETF.
Benefits of investing in the Gold ETF:
1. Transparency in price:
The Gold ETFs are traded in the stock exchange in electronic form, same as other stocks listed in the stock exchange. Hence we can track the prices online and sell them whenever needed.
2. Gold ETFs are traded in electronic form:
Gold ETFs are traded in the stock exchange in electronic form and to invest in gold etfs we need to have access to a demat account
3. They are Safe:
As discussed above, the investment is in electronic form and not the physical gold, there would be no loss and risk of theft in this investment.
4. We can invest small:
Gold ETFs open the doors to small investors, we can invest in Gold ETFs as small as 1grams.
5. Gold ETFs don't need any assurance for the Gold Purity:
When we purchase the physical gold, we always check for the purity of the gold. As that purity decides the value of the physical gold. While in case of Gold ETFs, as they are as good as stocks, we don't need to worry about the purity. The Gold ETFs are traded as same as stocks,
Disadvantages of investing in Gold ETFs:
1. Annual charges for account maintenance:
We need a Demat account in order to invest in Gold ETFs, we need to pay annual maintenance charges for the demat account. But if we are using the same demat account for stock trading, then it will not be a issue to pay the maintenance charges.
2. Transaction or commission charges while purchase or sell:
As mentioned above, the Gold ETFs are traded similar to other stocks on stock exchange. hence we need to pay the transaction or commission charges to the broker(your demat account service provider). The charges will be completely dependent on the broker, which are approximately 0.25% to 0.75% on the total Purchase or Sell value of the Gold ETFs.
Conclusion:
We have seen the benefits and disadvantages of both the physical gold and Gold ETFs, based on that if we are not going to use the Gold as ornaments and are looking the gold as an investment option, the best investment option would be Gold ETFs.
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