Gold vs Gold ETFs: Which Investment Option is Right for You?
Gold ETFs are stock market-traded investment options that allow investors to buy and sell gold without handling physical assets.
Physical Gold vs. Gold ETFs: Performance Over Time
Gold has historically provided strong returns, outperforming many asset classes.
- Gold price growth (10 years): From Rs 26,340 per 10 grams in 2015 to Rs 88,996 per 10 grams in 2025, yielding a 12 per cent compound annual growth rate (CAGR).
- Gold price growth (15 years): From Rs 18,500 per 10 grams in 2010 to Rs 88,996 per 10 grams in 2025, a CAGR of 17.01 per cent.
- Gold ETF returns: Averaged 11.44 per cent CAGR over 10 years and 10.80 per cent over 15 years, slightly trailing behind physical gold.
The data clearly shows that while Gold ETFs offer convenience, physical gold has delivered higher long-term returns.
Gold ETFs: A Modern Investment Approach
Gold ETFs are stock market-traded investment options that allow investors to buy and sell gold without handling physical assets. These funds track real-time gold prices and provide liquidity, transparency, and global price alignment.
- Key advantage: No storage concerns, no making charges, and easy liquidity.
- Performance in FY2024-25: Gold ETFs saw Rs 14,948 crore in inflows (almost triple from FY2023-24), with Assets Under Management (AUM) surging 95.2 per cent year-on-year to Rs 55,677 crore (as of February 2025).
Advantages and Disadvantages of Both Investment Forms
Benefits of Physical Gold
- Cultural and sentimental value – Used in jewellery and as a family heirloom.
- Collateral for loans – Banks offer gold loans, making it a liquid asset in emergencies.
- Tangible security – Not affected by market fluctuations like ETFs.
Risks of Physical Gold
- Storage and security issues – Requires safekeeping in lockers, incurring extra costs.
- Impurity risks – Counterfeit gold exists, making BIS hallmark verification crucial.
- Liquidity constraints – Immediate selling may not fetch the best price.
Benefits of Gold ETFs
- No storage or security risks – Held in demat form.
- No making charges – Direct investment at real market prices.
- Instant liquidity – Can be bought and sold like stocks.
Gold vs Gold ETF: 10-Year and 15-Year Returns
| Investment Type | 2015 Price (Rs per 10g) | 2025 Price (Rs per 10g) | CAGR (10 Years) | CAGR (15 Years) |
|---|---|---|---|---|
| Physical Gold | Rs 26,340 | Rs 88,996 | 12% | 17.01% |
| Gold ETF | – | – | 11.44% | 10.80% |
Physical gold, with a 17.01 per cent CAGR, has outperformed Gold ETFs over 15 years, while 10-year returns remained similar.
Pros and Cons: Physical Gold vs Gold ETFs
| Factor | Physical Gold | Gold ETFs |
|---|---|---|
| Storage & Security | Requires safe-keeping, risk of theft | No storage concerns, stored digitally |
| Liquidity | Selling may involve losses (making charges) | Highly liquid, traded on the stock exchange |
| Taxation | Long-term capital gains (LTCG) tax of 12.5 per cent | LTCG tax applies after 12 months |
| Usage | Can be worn, gifted, pledged for loans | Purely an investment instrument |
Disadvantages of Gold ETFs
- Requires a demat account – Additional setup and maintenance costs.
- Subject to market fluctuations – Prices depend on market demand.
- Long-Term Capital Gains Tax (LTCG) – Gold ETFs held for over 12 months incur a 12.5 per cent tax, similar to physical gold.
Who Should Invest in What?
- Buy Physical Gold if you prefer jewellery, traditional investment methods, or want an heirloom asset.
- Opt for Gold ETFs if you seek a hassle-free, secure, and liquid investment without storage concerns.
With gold prices hitting record highs, choosing between physical gold and ETFs depends on your investment goals, risk tolerance, and storage preference. Understanding these factors can help investors make informed decisions and secure long-term financial growth.