Gold Exchange Traded Funds (ETFs) are financial instruments that track the price of physical gold. These are traded on stock exchanges like shares, making them accessible to investors with a demat account. Gold ETFs represent ownership in gold, and each unit corresponds to a specific quantity of physical gold. ETFs provide liquidity as they can be easily bought and sold on the market. They offer transparency, as their prices are linked to the current gold rates, making them an attractive option for investors seeking exposure to gold without owning it physically.
Difference between digital gold and gold ETFs
| Feature | Digital Gold | Gold ETFs |
| Storage | Stored in digital form by providers | Held in a demat account |
| Trading Hours | Can be bought/sold 24/7 | Traded only during stock market hours |
| Minimum Investment | Low (as low as Re. 1) | Requires a minimum ETF unit purchase |
| Fees and Charges | May involve storage fees | Includes brokerage and fund management fees |
| Liquidity | High, can be sold at any time | High, but limited to market hours |
Should you invest in digital gold or gold ETFs?
Choosing between digital gold and Gold ETFs depends on your investment goals. Digital gold suits small investors looking for flexibility in purchasing smaller amounts and easy liquidity at any time. On the other hand, Gold ETFs are suitable for investors who already have a demat account and want to trade in gold like shares during market hours. Both options offer exposure to gold without physical storage, but Gold ETFs provide more transparency and lower charges for larger investments. Assess your financial objectives before making a decision.
Pros and cons of digital gold vs. gold ETFs
Investing in digital gold or Gold ETFs offers different benefits and drawbacks:
| Feature | Digital Gold | Gold ETFs |
| Ownership | Direct ownership of physical gold, redeemable for coins or bars. | No physical ownership; you own shares representing gold. |
| Fees | May involve storage fees over time. | Lower management fees, but may incur brokerage costs. |
| Liquidity | Instant transactions through apps with high liquidity. | Traded on exchanges, highly liquid but may incur fees. |
| Diversification | Mainly focuses on physical gold investment. | Easy to integrate into a diversified portfolio. |
This table outlines the core advantages and disadvantages of both investment options in a clear, comparative format.
How to choose between digital gold and gold ETFs?
Before choosing between digital gold and Gold ETFs, consider your investment preferences. If you want flexibility with small investments and liquidity at any time, digital gold is ideal. However, if you already have a demat account and prefer trading in a regulated market, Gold ETFs may be better suited. You should also evaluate fees, storage charges, and the ease of selling when making your decision. Think about the purpose of your investment and your risk tolerance before committing to either option.
Tax implications of digital gold vs. gold ETFs
The tax treatment of digital gold and Gold ETFs differs. Gains from digital gold are subject to capital gains tax based on the holding period, similar to physical gold. Short-term gains are taxed according to your income tax slab, while long-term gains are taxed at 20% with indexation benefits. For Gold ETFs, short-term capital gains are taxed at your income slab rate, while long-term gains also attract 20% tax with indexation. Additionally, there may be GST charges on digital gold purchases, which don’t apply to ETFs.
Can you use gold ETFs as collateral for a gold loan?
Yes, you can use Gold ETFs as collateral for a gold loan. Financial institutions allow you to pledge your Gold ETFs to secure loans, similar to how you can pledge physical gold. The loan amount depends on the value of the ETF units, and the process is simple if you already have an ETF account. Since Gold ETFs represent actual gold holdings, they offer a reliable source of collateral for gold loans.
How to apply for a gold loan with digital gold or gold ETFs?
Applying for a gold loan with digital gold or Gold ETFs follows a straightforward process. For digital gold, some providers allow you to pledge your holdings to secure a loan. With Gold ETFs, you can approach financial institutions that accept ETFs as collateral. You'll need to submit your ETF account details or digital gold certificates, and the loan is sanctioned based on the value of your holdings. Interest rates vary, and it's important to compare lenders before applying.
Is a gold loan possible against digital gold?
Yes, you can secure a gold loan against digital gold. Some financial institutions and digital gold platforms offer this service. You can pledge your digital gold holdings and receive a loan based on their value. The process is similar to pledging physical gold or Gold ETFs. However, the loan amount depends on the current market price of gold. The
gold loan tenure and interest rates may vary, so it's crucial to review your options before applying.
Eligibility of digital gold loan gold ETFs
The
eligibility for securing a loan against digital gold or Gold ETFs depends on the lender's terms. Generally, any individual holding digital gold or Gold ETFs can apply for a loan. For digital gold, you may need to hold a minimum quantity before it can be pledged. For Gold ETFs, the process is more straightforward if you already have an ETF account. Lenders assess the value of your gold holdings before approving the loan, and interest rates and tenure may vary.
