Physical Gold Vs Gold ETFs: Which is better? 5, 10 and 15-year returns compared!
In the past, gold investors didn’t have many options other than parking their fund in physical gold. However, over time, markets found new gold investment avenues and now investors have as many as five options – Sovereign Gold Bonds (SGBs), Gold ETFs, Gold Funds, digital gold and physical gold.
Let’s briefly understand the key features of each of these gold investment tools, one by one.
Sovereign Gold Bonds (SGBs): The Reserve Bank of India (RBI) launched this bond scheme for gold investors in 2015, offering an interest rate of 2.50% (fixed rate) per annum on the nominal value. The interest amount is credited semi-annually to the investor’s account and the last interest gets paid on maturity along with the principal.
The minimum investment limit in SGBs is 1 gram and the maximum limit is 4 Kgs for individuals and HUFs (Hindu Undivided Families) and 20 Kgs for trusts and similar entities in a financial year.
Also read: Gold or Gold ETF: What should you buy on Dhanteras? Returns of 1, 3 and 5 years compared!
Gold ETFs: Gold ETFs (Exchange-Traded Funds) trade on stock exchanges and can be bought and sold continuously at market prices. Gold ETFs are passive investment instruments directly linked to current physical gold prices and invest in gold bullion.
Gold Funds: Gold MFs hold assets related to gold. Like other mutual fund schemes, gold mutual funds also operate at the day’s NAV and allow SIP investments to subscribers with a minimum amount of Rs 500. Gold MFs help investors gain an exposure to the price movements of physical gold, without the need to own the metal.
Digital gold: As the name suggests, digital gold enables investors to buy electronically and possess the precious metal digitally in a vault. This is in contrast to conventional gold investments, where investors purchase gold in the form of bars, coins and jewellery. The value of digital gold is directly linked to the physical gold of 99.9% purity.
Physical gold: Physical gold can be bought in the form of jewellery, coins and bars. Physical gold, especially sold through jewellery items and coins, is available in the market in various purity forms like 24-,22- and 18 Karats.
Also read: How much a Rs 1 lakh investment in gold, real estate and Indian stocks has grown in 20 years
Experts suggesting ETFs as the next best bet for gold investors:
Chethan Shenoy, Director & Head – Product & Research, Anand Rathi Wealth Limited, says, “In case you are looking to invest in gold in 2025, there are primarily five options: SGBs, Gold ETFs, Gold Funds, digital gold, and physical gold. SGBs have been the best option to invest; however, there has been no new Sovereign Gold Bond (SGB) launched recently, which makes Gold ETFs the next best bet right now.”
Gold ETFs stand out as they invest in gold bullion of 99.5% purity, Shenoy said adding that “In case you want exposure in gold, ETFs are the go-to-option; however, ensure that you do not have more than 10% exposure in gold in your portfolio”.
Gold or Gold ETF? Which has given better returns over 5, 10 and 15 years?
Physical Gold
Gold investment return in 5 years
The price of gold has seen a significant increase in the last 5 years, rising from Rs 31,500 per 10 grams on December 24, 2019, to Rs 78,500 on December 24, 2024. This represents a CAGR of approximately 20%.
Gold investment return in 10 years
The price of gold on December 24, 2014, was Rs 25,570 per 10 grams. As of December 24, 2024, the price has risen to Rs 78,500. This marks a CAGR return of approximately 12%.
Gold investment return in 15 years
Gold price of 24-karat purity on December 24, 2009 stood at Rs 16,500 per 10 grams. Over the last 15 years, the precious metal has seen a CAGR of 11%.
Also read: Dhanteras: Nearly 30% surge already in past 1 year! Gold to cross Rs 1 lakh mark by next Diwali?
Gold ETFs
5-year returns of top performing Gold ETFs
LIC MF Gold ETF, Axis Gold Fund, Invesco India Gold ETF, SBI Gold Fund and Aditya Birla Sun Life Gold ETF have emerged as top performing funds based on their last 5-year returns. Over the last five years, these five gold funds have given returns in a range of 13.8% to 14.07%.
10-year returns of top performing Gold ETFs
Based on 10-year returns, LIC MF Gold ETF, SBI Gold Fund, Kotak Gold Fund, Aditya Birla Sun Life Gold ETF and Invesco India Gold ETF have featured among the top 5 funds. The returns generated are in a range of 10.02% to 10.28%.
15-year returns of top performing Gold ETFs
UTI Gold Fund, SBI Gold ETF, Kotak Gold ETF, Quantum Gold ETF, and Nippon India ETF Gold BeES have delivered returns ranging from 9.54% to 9.62% over the last 15 years. These are among the oldest funds, providing 15 years of data, whereas newer funds lack comparable 15-year performance records.
Summing up:
Over the last 5 years, physical gold outperformed Gold ETFs with a 20% CAGR compared to 13.8%-14.07% returns from top ETFs. In 10 years, physical gold gave 12% CAGR, while ETFs returned 10.02%-10.28%. Over 15 years, the gap narrows, with physical gold at 11% CAGR and ETFs delivering 9.54%-9.62%.
While physical gold offers higher returns, gold ETFs provide added convenience and liquidity, appealing to different investor needs. Investors get the advantage of investing in gold ETFs due to liquidity, transparency, cost-effectiveness, and ease of trading compared to physical gold.