Want to buy gold online? First, understand the difference between Gold ETFs and Digital Gold! Which one will deliver true 'golden returns'?
Gold ETFs and Digital Gold are both popular online investment methods, but their fundamental differences are significant. Find out which one is better, which offers greater security, and which one will deliver better returns.
Investing in gold is not just a financial decision for Indians, but also an emotional one. Buying gold has been a tradition in India during festivals, weddings, and other auspicious occasions. However, with changing times, the methods of investing in gold have also changed. Today, in addition to physical gold, there are also options like Digital Gold and Gold ETFs. Both of these options offer investors the opportunity to invest in gold. But what are the differences between the two, and which option is better for you? Learn more here.
What is a Gold ETF?
A Gold ETF (Exchange Traded Fund) is a type of mutual fund that trades on the stock market, and its value is linked to the price of gold. This means that when gold prices rise, the value of your Gold ETF will also increase.
To purchase an ETF, you must have a Demat account. It is purchased just like buying shares. Each Gold ETF is purchased as a unit. Each Gold ETF unit is backed by the value of 99.5% pure gold.
Example
If the price of gold is ₹6,000 per gram, then 1 unit of ETF (which is usually equivalent to 1 gram of gold) will also cost approximately ₹6,000.
2. What is Digital Gold?
With Digital Gold, you buy gold directly through a mobile app or website. This is not physical gold; instead, the company holds that amount in a secure wallet in your name. If you wish, you can later sell this gold for cash or order physical gold (coins/bars).
Example
If you purchase digital gold worth ₹5,000, the same amount of 24-carat gold will be kept safe in the company's wallet in your name.
Advantages of Gold ETFs
Purity and Security: Gold ETFs are completely transparent and guarantee the purity of 24-carat gold. You don't have to worry about theft or security.
Liquidity: They can be bought and sold on the stock exchange at any time, making them highly liquid. You can buy or sell immediately at the market price.
Low Cost: Investing in gold ETFs is lower than investing in physical gold because they don't incur making charges or storage costs. Only a small expense ratio is charged.
Transparency: Their prices are determined based on actual gold prices in the market, ensuring complete transparency.
Investing in small amounts: You can start investing with small amounts, sometimes even buying units equivalent to less than 1 gram of gold.
Disadvantages of Gold ETFs
Demat Account Required: You need a demat account and a trading account to invest in gold ETFs.
Brokerage Fees: Brokerage fees apply on every purchase and sale.
Expense Ratio: Fund houses charge a small expense ratio annually.
No Physical Gold: You don't get physical gold, only a physical representation.
Advantages of Digital Gold
Convenience: It can be easily purchased online, anywhere, anytime.
Investing in small amounts: You can start investing with very small amounts, such as 0.1 grams or as little as 1 rupee.
Purity: Digital gold is guaranteed to be 24-carat pure.
Physical delivery option: Some digital gold providers also offer you the option of physical gold after depositing a certain amount, although this may incur additional fees.
No demat account: You don't need a demat account.
Disadvantages of digital gold
No regulator: There is currently no central regulatory body (such as SEBI) for digital gold, which increases its risk. The RBI has prohibited some entities from selling digital gold, reflecting its regulatory ambiguity.
Storage fees: Some providers may charge storage fees for storing gold.
Lack of liquidity: Compared to gold ETFs, it has less liquidity. You may need to use the same platform from which you purchased it to sell it.
Low insurance coverage: Insurance coverage for storage may be limited or nonexistent.
Platform risk: If the platform from which you purchased goes bankrupt, your investment may be affected.
Key Differences Between Gold ETFs and Digital Gold
| Comparison Aspect | Gold ETF | Digital Gold |
|---|---|---|
| Platform | Stock Exchange (NSE/BSE) | Mobile App or Website |
| Ownership | In the form of paper or units | As real gold stored in a wallet |
| Trading | Through Demat Account | Through any app |
| Liquidity (Withdrawal) | Can sell only during market hours | Can sell anytime |
| Safety | Regulated by SEBI and RBI | Regulated by Private Vaults |
| Minimum Investment | 1 Unit | Starts from as low as ₹1 |
| Taxation | Capital Gains Tax (Long-term after 3 years) | Taxed like Physical Gold |
| Storage Cost | None | Some companies charge wallet fees |
Which to Choose – Gold ETFs or Digital Gold?
If you are an experienced investor, have a demat account, and want high liquidity and regulatory protection, gold ETFs are a better option. They are ideal for long-term investments and offer a more efficient approach compared to physical gold.
However, if you are a small investor, don't want to open a demat account, and want to start with a small amount, digital gold can be a convenient option. However, regulatory ambiguity and platform risks must be considered. If you prefer to acquire physical gold, some digital gold providers may offer this option.
FAQs: Gold ETF vs Digital Gold
Q1. Is Digital Gold real gold?
Yes, it is 24-carat gold that the company holds in your wallet.
Q2. Can physical gold delivery be taken in a Gold ETF?
No, it is only a financial product that can be redeemed for cash.
Q3. Is there any risk in Digital Gold?
There is some risk, as it is not regulated by SEBI or RBI, but is managed by private companies.
Q4. Can one do an SIP in Gold ETF?
Yes, you can invest in Gold ETFs through SIP mode through mutual fund platforms.
