Digital Gold vs. Gold ETFs: What's the Best Investment Option for You? (2024)

FAQs

Which is better, gold ETF or digital gold? ›

Unlike physical gold, which requires secure personal storage, Digital gold is stored in high-security vaults managed by the service provider, eliminating the need for personal storage. Further, digital gold can be bought and sold online instantly, providing greater liquidity.

In terms of gold ETF, profits aren't taxable, but capital gains tax is levied upon selling the ETFs. Physical gold, on the other hand, charges 3% of GST while buying gold jewelry, bars, and coins—and, capital gains tax is charged when selling the yellow metal.

While digital gold allows better short-term investment and does not have the storage hassle, physical gold is better suited for the long term. Also, those preferring liquidity should go for digital gold, but risk-averse investors should choose physical gold.

Though sovereign gold bonds are among the safest avenues to invest in gold in India, some risk is still there. The sovereign default risk exists due to the fact that sovereign gold bonds (SGBs) are not backed by physical gold but instead by a derivative of gold issued by the Indian government through the RBI.

Digital Gold Disadvantages

It may face legal or compliance issues in the future. For some people, buying gold that they can't physically own is still risky. Some lenders or merchants may not accept it as collateral or payment.

Gold ETFs can easily be bought and sold throughout the day, just like stocks. Benefits of gold ETFs include convenience, liquidity, and fractional ownership. Drawbacks of gold ETFs include counterparty risk, tracking errors, and lack of physical ownership.

For us, the best type of gold to buy is physical gold bullion. The precious metal has been loved for centuries as a safe haven in which to grow and store wealth and physical bullion best reflects these qualities today.

For investors seeking more tangible and direct exposure to gold, physical bars and coins may be the way to go. Unlike gold-linked financial instruments, physical gold offers the reassurance of direct ownership, with the ability to hold the metal in your possession or store it in a secure facility.

Is buying digital gold a good investment? Digital gold can be bought for purity, safety, liquidity, and it does not invite locker or insurance charges, or worry of wear and tear of the metal. The downside is that digital gold lacks the emotional touch that a physical gold investment provides to the investor.

Can I convert digital gold to physical gold? ›

You can convert your digital gold to physical gold anytime you want. You need a minimum of one gram of gold in your digital gold account to convert it into a physical form of gold, like gold coins, bars, etc.

The key difference between Digital Gold and Sovereign Gold Bonds is that Digital Gold allows you to own physical gold electronically and buy or sell in small amounts. On the other hand, Sovereign Gold Bonds are government securities that offer regular interest payments while tracking the price of gold.

Traditional mutual funds tend to be actively managed, while ETFs normally adhere to a passive index-tracking strategy and therefore have lower expense ratios. For the average gold investor, mutual funds and ETFs are generally the easiest and safest way to invest in gold.

The bottom line

Ultimately, the best gold type to invest in with prices near all-time highs depends on your financial goals, risk tolerance and how long you plan to hold the investment, says DeMeritt. Physical gold, like gold bars or gold coins, is typically better for long-term investing.

Ideal for Long-Term Investment

If you consider to hold physical gold for a long period of time without any intention to sell part of your investment overtime, gold bars will be the best option for you. They will cost you less per gram compared to gold coins. This is because of their lower premium, as explained below.

If you are looking to invest in gold, then the best option is Digital gold. This is 24K 99.9% pure gold, and there is no possibility of losing this. It does not come with charges such as making and wastage charges. You don't have to worry about safety, and it is easy to buy and sell.

Physical gold provides long-term stability and more security when the economy spirals. Gold ETFs give you that true physical gold feel as an investment but offer higher liquidity and less logistical challenges as owning the actual metal.