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5 Differences Between Physical Gold And Gold ETFs


Buying physical gold is very different from buying and owning gold ETFs, though one must admit that ultimately the value of both would remain the same, barring marginal differences.


On the pricing aspect, it may be noted that price of physical gold varies from city to city as well as jeweler to jeweler whereas for the gold ETFs prices are based on the international standards and are always transparent.

Remember if you buy, you are owning gold, whether it is Gold ETFs or physical gold, though the costs, mechanism to sell and tax implications differ. Following are 5 differences between Gold and Gold ETFs.

 5 Differences Between Physical Gold And Gold ETFs

Gold ETFs are held in electronic form

Gold ETFs are held in electronic form, in a similar manner you hold shares. It's like a bank account where you have a balance in your account, but do not hold the money physically. When you want the money from your bank you withdraw the same. Similar is the case with Gold ETFs, where you hold 1 Unit which is equal to one gram of gold and when you want the money you sell the same. So, for trading in it i.e buying and selling it at a higher price you need a demat account In the case of physical gold, you hold the gold physically.


Wealth Tax on physical gold

Holding large amounts of physical gold will attract wealth tax, even if the same is in the form of jewellery. Gold ETFs do not attract wealth tax as it is a financial product.

Capital gains on Gold ETFs

Unlike shares, Gold ETFs are not exempted from long term capital gains. For Gold ETFs 1 year is considered for Long Term Capital Gains Gold ETFs if sold within a year with gains on it are taxed as per the tax slab in which the person holding the financial instrument falls. However, if gold ETFs is sold after a year with profits then a tax rate of 20% with indexation shall apply.

Similar taxation rules of short and long term capital gains as in gold ETFS apply on physical gold. However, there is one key exception, for capital gains to accrue, the asset has to be sold after some time and in a case when there is no sale there is no tax liability on the asset class.

No chances of theft in Gold ETFs unlike physical gold

There are chances that physical gold could be stolen and you very often hear cases of theft. There is no chance of Gold ETFs being stolen since they are held in electronic form.

Storage costs on physical gold

Physical gold is bound to attract storage costs, since many individuals hire lockers in the bank to store gold. Gold ETFs on the other hand do not attract storage costs since they are held in the electronic form. But it is to be noted, NAV for a gold ETF that determine your return on the instrument is provided after deducting expense ratio as the fund management fee which is inclusive of the storage cost.

Read more about: gold etfs gold
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