For Indians, gold is not just an investment but an emotion. For centuries, Indian households have seen gold as a synonym for wealth and prosperity. Traditionally, people used to buy it in the form of jewellery and coins, but with time, new investment options came.
Now, options like gold ETFs (exchange-traded funds), sovereign gold bonds (SGBs), and digital gold are available in the market, which are ideal for those who want to invest in the yellow metal without buying it in physical form. These options save the hassle of buying, selling, and keeping gold safe. But the question is, despite these new options, has the traditional craze of Indians towards gold reduced?
Physical Gold: Still the first choice of Indians
Buying gold is considered auspicious on weddings, religious rituals, and special occasions. This is the reason why, even though the government and the Reserve Bank of India (RBI) introduced schemes like sovereign gold bonds, people remained inclined towards physical gold.
People not only like to wear it as jewellery, but also consider it a safe investment that can be sold when needed. This is the reason why tonnes of gold are bought every year in the Indian market, and people’s interest in it never fades.
Also read: Govt’s Gold Bond Gamble: Windfall for investors, disaster for the centre?
Gold ETF: Modern way to invest in gold
Gold ETFs trade on the stock exchange, and their prices are linked to physical gold prices. It is an excellent option for those who want to invest in gold but want to avoid the worry of storage, theft and impurity.
A demat account is required to invest in gold ETF, and it can be bought or sold through the stock exchange. It is completely digital, so investors do not have to worry about keeping the gold safe.
Gold ETFs have become quite popular among investors due to traits like liquidity, transparency, and global price alignment of the metal.
Also read: Top 5 Cheapest Gold ETFs to Own in India
In FY2024-25 (first 11 months till February 2025), gold ETFs have recorded inflows of Rs 14,948 crore, up nearly three times from 2023-24. In terms of assets under management (AUM), gold ETFs reported a 95.2% rise at Rs 55,677 crore in AUM year-on-year for February 2025.
Gold or Gold ETF? Which has given better returns over 10 and 15 years?
Gold investment return in 10 years
Over the last 10 years, gold price has risen from Rs 26,340 to Rs 88,996 per 10 grams, a 12% CAGR. The MCX spot price of gold stood at Rs 88,996 per 10 grams as of March 28, 2025.
Gold investment return in 15 years
If we look at gold’s 15-year journey from 2010 to 2025, the yellow metal’s price stood at Rs 18,500 per 10 grams and has grown to Rs 88,996 per 10 grams, a CAGR of 17.01%.
Gold ETF returns in 10 and 15 years
The average return in gold ETFs has been 11.44% in the last 10 years and 10.80% over the last 15 years.
This clearly shows that physical gold with a 17% CAGR has outperformed gold ETFs and probably several other asset classes. The 10-year returns in gold ETFs and physical gold remained almost identical.
Benefits and risks of investing in physical gold and gold ETFs
Benefits of physical gold
Physical gold has its importance as it is worn as jewellery and can be preserved as an inheritance from generation to generation. This is the reason why physical gold has always been considered a safe asset in Indian families.
Apart from this, another big advantage of physical gold is that it can be mortgaged if needed. If ever faced with financial crisis, banks and financial institutions provide loans on it. In this way, physical gold also acts as a safe and liquid asset.
Also read: Gold price jumps to level never seen in history
Risks of physical gold investment
As easy as it is to buy physical gold, it can be equally challenging to keep it. Security and storage are one of the biggest concerns. A locker is required to keep it, which can bring additional expenses. If kept at home, there is always a risk of theft or loss.
The second problem is impurity and making charges. Fake or impure gold jewellery is easily available in the market, so buyers are always advised to buy after looking at the BIS hallmark. Apart from this, making charges also have to be paid while making gold jewellery, which increases its total cost.
The liquidity of physical gold is also limited. If it has to be sold suddenly, it is not always possible to get the right price. Many times the money for the making charge is not refunded, which can cause loss to the investors.
Benefits of gold ETFs
Gold ETF is an excellent option for those investors who want to invest in gold but want to avoid hassles like storage and security. Since it is safe in the demat account in digital form, there is no worry of theft or loss in it.
There is no making charge to be paid on investing in gold ETF, and it can be bought or sold at market price. It is a transparent investment option, as its prices are determined in the open market.
The biggest advantage is that gold ETFs can be bought and sold instantly. It is listed on the stock exchange, so there is no liquidity problem in it. Whenever you need cash, you can sell it immediately.
Also read: Gold price touch record highs, Should investors buy more or sell?
Disadvantages of gold ETFs
A demat account is required to invest in gold ETFs. Not every investor has a demat account, and if not, then it may cost money to open and maintain it.
In addition, Long Term Capital Gain Tax (LTCG) is applicable. If you hold gold ETFs for more than 12 months, you have to pay 12.5% LTCG tax without indexation , which is also applicable on physical gold.
Since gold ETFs are traded on the stock exchange, its price can be volatile. It fluctuates depending on the demand and supply in the market, which can be a cause of concern for some investors.
Who should invest where?
For those who see gold as jewellery or family heirloom, physical gold is a better option. It is useful for weddings or traditional events.
Those who want to buy gold only for investment purposes and prefer safety and liquidity can choose Gold ETF. It is safe in digital form and can be easily sold when needed.
Gold ETF or physical gold – Which option is better?
Both gold ETF and physical gold have their own advantages and disadvantages. If you just want to invest and want to avoid the hassle of storing gold, then gold ETF is a smart option. But if you want to wear it as jewellery or want to buy gold due to traditional thinking, then physical gold will be the right choice.
It is important to understand your objectives and needs before investing, so that you can take the right decision and secure your future.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.