Physical Gold vs ETF, Digital Gold, Which Is The Right Choice For Your Portfolio?
Tue Oct 29 2024
In India, gold is far more than a commodity—it’s a symbol of wealth, security, and tradition. Amid global economic shifts and evolving investment landscapes, gold remains a popular choice, but modern investors now have options beyond physical gold. With choices like Gold ETFs and digital gold gaining traction, investors are now evaluating which form aligns best with their financial goals and lifestyles. Mayank Bhatnagar, Co-founder and COO of FinEdge offers insights into the strengths and challenges of each option, helping investors make informed decisions that balance tradition with innovation.
Tangibility and Tradition of Physical Gold vs. the Efficiency of Gold ETFs
Bhatnagar emphasises that physical gold holds significant emotional and traditional value for Indians, often chosen for cultural reasons and a sense of tangible ownership. However, these benefits come with practical drawbacks. Storage costs, limited liquidity, and risks of theft or loss make it less attractive purely from an investment perspective.
In contrast, gold ETFs offer a digital approach. Bhatnagar highlights their ease of liquidity, transparency, and tax efficiency. “ETFs eliminate storage concerns and provide a seamless way to include gold in an asset allocation strategy,” he says.
Unlike physical gold, however, ETFs lack traditional appeal and might incur minor brokerage fees, though these costs are generally lower than storage expenses for physical gold.
Digital Gold – A Modern Investment Frontier
Digital gold has become an increasingly popular alternative, offering easy access and flexibility through online platforms without needing a demat account.
Bhatnagar points out that digital gold combines the accessibility of ETFs with lower barriers to entry, making it ideal for new investors. “Digital gold is safe due to regulatory oversight and doesn’t require a demat account, unlike ETFs. However, ETFs offer higher liquidity and are more cost-effective,” he notes.
While digital gold provides unique advantages, Bhatnagar cautions that it’s essential to remember that gold, as an asset class, might not align with long-term financial goals. Instead, he advises a well-rounded investment plan to ensure returns that secure wealth over time.
The Future of Gold Investments: Can Digital Gold Compete?
According to Bhatnagar, the rise of digital gold is creating new investment avenues. However, physical gold’s cultural and emotional significance in India is irreplaceable. ETFs, meanwhile, remain a trusted choice for those seeking a cost-effective, regulated way to incorporate gold into their portfolio. Bhatnagar believes that digital gold will complement rather than replace traditional forms, offering an accessible alternative for a more diversified approach.
Opportunities and Challenges for NRIs in Gold Investments
Gold investments provide NRIs with a diversified hedge against inflation, currency fluctuations, and global uncertainties. Bhatnagar points out that NRIs can benefit from the easy accessibility of gold ETFs for regulated market exposure or digital gold’s convenience without the hassle of physical storage. However, he emphasises the importance of aligning gold investments with financial objectives rather than market trends, noting that “gold is ideally suited as a hedge, but not as a primary investment.”
Navigating Taxation Policies on Gold Investments
The 2024 Budget introduced critical changes for gold investments. Bhatnagar highlights that the long-term capital gains (LTCG) holding period for gold has been reduced from 36 to 24 months, with the LTCG tax rate revised to 12.5% (without indexation benefits). For NRIs, taxation remains a key consideration, with a flat 30% TDS on capital gains. However, this can be reclaimed as a tax refund during annual filings, adding some flexibility for non-resident investors.
The choice between physical gold, gold ETFs, and digital gold ultimately depends on individual priorities—whether it’s the emotional connection to physical gold, the regulatory security of ETFs, or the accessibility of digital gold. As Bhatnagar advises, a balanced investment strategy is crucial, ensuring that every asset contributes meaningfully to long-term goals and wealth creation.
Source: https://www.news18.com/