Physical Gold Vs. Gold Bonds Vs. Digital Gold vs. Gold ETF Vs. Gold Mutual fund – Which is the best gold investment?

Online Gold Investment

Traditionally, Indians have always had an affinity for gold- whether it is as a mark of status symbol or an investment instrument. Ask any Indian about their investment portfolio, and you will find gold to have a sizeable allocation percentage on it. Featuring prominently in Hindu mythology, gold was believed to be the soul of the world. The first gold coins were issued in 250 A.D during the Gupta dynasty, also known as the Golden Age.

The history of gold in India is a fascinating study steeped in rich culture and deep tradition. The yellow metal has a long-term value based on its rarity, desirability, and usefulness. From gods to gadgets, a small amount of gold is present in almost everything we possess.

However, we are fast adapting to the changing dynamics of the way gold is held. Gone are the days when the majority of gold investments were in their physical form. Today, digitization has ushered in multiple new ways of investing in gold. The question, however, is not why you should invest in gold but how to invest in gold.

We do a comparative analysis of the top ways to invest in gold so you can find your perfect fit.

ParametersPhysical GoldGold BondsDigital GoldGold ETFGold Mutual Fund
1. DefinitionTangible gold in the form of jewelry, coins, and ingots are classified under this category.Sovereign gold bonds are securities that are denominated in quantities of gold. The owner pays an issue price and can redeem the bond for money on maturity.This is a promise of the same value as the physical gold. Bought either via trusted mobile e-wallet apps or through financial institutions/portfolio manager, digital gold investment is backed by physical gold which is allocated to the investor and stored in secure and insured vaults.`This digital gold can be redeemed in physical form or sold as is. Gold ETFs are mutual funds that are commodity-based and invests your money in gold assets. They are relatively passive instruments dependent on the current gold prices.Gold mutual funds are open-ended investment instruments that directly or latently invest in institutional gold reserves.
2. StorageRequires purchasing/renting a bank vault to secure physical gold at a cost safely. Or stored in strong vaults at home, which a relatively unsafe practice.Since these are bonds, the owner gets a Certificate of Holding and can redeem the bond later in 5-8 years. There’s no actual transaction related to gold. Hence there’s no storage requirement.The gold you buy online is allocated as physical gold under your direct ownership and stored within fully insured, certified vaults located on our highly secure premises.These are traded like regular stocks and are held in the owner’s Demat account.Gold Mutual Funds are also stored in the holder’s Demat account.
3. Risk factor and other drawbacksSecurity risks, chances of theft, and additional costs involved in procurement and storage are the drawbacks of holding physical gold.Although tradable, they come with longer tenor periods with exit windows after a minimum of 5 years.There’s no regulator for digital gold, unlike the SEBI for Gold ETFs and the RBI for Gold bonds. But, MMTC-PAMP digital gold is audited by the IDBI Trusteeship, which is there to ensure that the customer’s gold is safe.Similar to other equity funds, market trends govern the Net Asset Value of Gold ETFs. These also carry manager funds and other expenses that may eat away at the final return amount.Contingent on market prices and carry a management fee which will hit your expense ratio.

Each form of gold investment carries its own set of benefits and risks. While the digital natives are quickly warming up to the convenience and safety of buying digital gold, traditional investors are testing the waters and gradually moving away from physical ownership. We hope this article gave you insights into the different formats to make an informed investment decision.

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