Apart from physical gold, there are other avenues which allow a prospective investor in the precious yellow metal to make a more systematic investment. These include Gold ETF, e-gold and sovereign gold bonds. Here's depending upon your goal and investment objective, are listed few of the major differences between gold ETFs and e-gold.
Gold ETFs are mutual funds which invest in physical gold of 99.5% purity. Generally each fund unit corresponds to 1 gm gold but in some cases some of the brokers allow an investment of even 0.5 gms. While E-Gold is an electronic method of buying the yellow metal offering blend of both the forms - physical as well as electronic.For longer tenure, e-gold will turn out to be a better bet in comparison to gold ETF.
Gold-ETF can be converted to yellow metal
E-Gold can be converted to physical form. The "rematerialization" of E-Gold to yellow metal can be done where the minimum quantity of converting is fixed at 8 grams. Gold-ETF can be converted to yellow metal only when it exceeds certain size of 500 g to 1 Kg.
Timings of trading differ
E-gold are traded in NSEL from 10 a.m to 11:30 p.m on weekdays whereas Gold ETFs are traded only till 3:30 pm. So an investor can buy e-gold from a brokerage firm that has an affiliation with NSEL.
Tax treatment differs for both the instruments
For Gold ETFs 1 year is considered for Long Term Capital Gains while for E-Gold the period is 3 years. E-Gold also attracts wealth tax. Gold-ETFs are treated as Mutual Funds and hence do not attract wealth tax.
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.
In taxation terms, e-gold is tax-inefficient, despite being the cheapest form of investment in the precious metal.
E gold directly tracks gold prices
In Gold ETFs, investors track the Net Asset Value (NAV) which keeps changing with gold prices while in E-Gold investors directly track the gold prices.
Gold ETF does not require demat account
Investing in E-Gold requires a demat account. On the other hand, anyone can invest in Gold ETF without having a demat account.
Cost of Trading
Return which is determined basis the costs holds that e-gold shall earn better returns in comparison to gold ETFs as the NAV for gold ETFs is provided after making deductions for the fund management fee plus other custodian and storage charges. In the other case, on the spot exchange, e-gold is traded at a very nominal cost.
No recurring charges are associated with the trading of e-gold and hence returns over a period of time are higher in comparison. However both the asset class do attract a brokerage fee.