Investment Strategies
Gold ETFs vs Physical Gold: Which Is the Better Investment?
By Vikas GuptaPublished Updated
Quick answer
For investment, gold ETFs and gold funds are usually more efficient than physical gold, with no making charges, no storage worries and guaranteed purity. Physical gold makes sense for jewellery and tradition. Many planners suggest limiting gold to 5% to 10% of a portfolio.
Gold has a special place in Indian families, but jewellery and investment are different purchases. Compare them on what matters for each.
How do they compare?
| Physical gold | Gold ETF | Gold fund | |
|---|---|---|---|
| Purchase costs | Making charges, 3% GST | Brokerage, expense ratio | Expense ratio |
| Purity | Check hallmark | Backed by high-purity gold | Invests in a gold ETF |
| Storage | Locker or home risk | Demat account | Fund folio |
| SIP possible | No | Limited | Yes |
| Selling | Jeweller deductions may apply | On the exchange | Redeem with the fund |
How is gold taxed?
As of FY 2026-27, and subject to change:
- Physical gold: held over 24 months, 12.5% long-term tax. Otherwise, your slab rate.
- Gold ETFs: held over 12 months, 12.5%. Otherwise, your slab rate.
- Gold funds: held over 24 months, 12.5%. Otherwise, your slab rate.
Check the current rules with a tax professional before selling.
How much gold should I own?
Gold produces no income. Its role is to hold value during inflation, rupee weakness or market stress. It has tended to help when equity falls, though not always, and it can go years without gaining. A common guide is 5% to 10% of your investments, as part of a diversified portfolio. Include any gold you hold specifically as an investment, though most planners leave out family jewellery.
Which should I choose?
- Investing monthly without a demat account: a gold fund.
- You have a demat account: a gold ETF, which often has lower costs.
- A wedding or tradition: buy physical gold for what it is, and treat it as a purchase rather than an investment.
Frequently asked questions
Is a gold ETF better than physical gold?
For pure investment, it is usually more efficient because it avoids making charges and storage risk. Physical gold still has cultural and practical value that an ETF cannot replace.
Do I need a demat account for gold ETFs?
Yes. A gold ETF trades on an exchange and needs a demat account. A gold fund invests in ETFs for you and can be bought without one, often through a SIP.
Keep reading
Mutual fund investments are subject to market risks, read all scheme related documents carefully. Mutual fund distribution by Korlipara Vikas Gupta, AMFI-registered Mutual Fund Distributor, ARN-178652. Distributors earn commission from fund houses on regular plans. Content and calculators on this site are for education, not personalised investment advice. Illustrations use assumed returns, which are not guaranteed.