With the festival of Dussehra, gold takes centre stage in many households, symbolising prosperity and wealth. Traditionally, people flock to purchase physical gold during this time, but today, investors face a much more nuanced decision: Should they invest in Gold ETFs or sovereign Gold Bonds (SGBs) or stick with the time-honoured choice of physical gold? With the rise of modern financial products offering new ways to invest in the yellow metal, it’s important to weigh the benefits and limitations of each.
We spoke to investors, industry leaders and educators to make your purchasing decision easier this year. First of all, let’s understand in simple terms–each of the investment options.
In July 2024, investors deployed ₹1,337.4 crore into gold ETFs according to data released by the Association of Mutual Funds in India, the highest since August of the previous year, with net assets under management at ₹37,390 crore as of August 2024.
Gold ETFs
Gold Exchange-Traded Funds (ETFs) are financial instruments traded on stock exchanges like BSE and NSE, like company stocks. They track the price of gold and offer a practical and liquid way for investors to gain exposure to gold.
Moreover, Gold ETFs come without the need for safekeeping, unlike physical gold, which requires storage and is often subjected to concerns about purity and theft. Mohit Gang, CEO, of MoneyFront, says, “Gold ETFs are increasingly favoured by investors for their transparency, cost-effectiveness, and ease of trading compared to physical gold.”
Veer Mishra, founder of PLUS Gold, explains, “Gold ETFs provide liquidity, as they can be traded on major stock exchanges just like stocks. This means investors can buy or sell shares quickly during market hours, ensuring ease of access to their investments.”
They often come with lower management fees compared to traditional gold mutual funds, enhancing cost-effectiveness. Furthermore, Gold ETFs serve as a hedge against inflation and currency fluctuations, making them an attractive choice in uncertain economic times.
Dr Swati Shrikant Godbole, Associate Professor at K. J. Somaiya Institute of Management, explains the practical side of Gold ETFs: "The benefit of Gold ETFs is the minimum amount of investment—a minimum of ₹500 is required to invest in Gold ETFs, and one can also use the SIP route. However, nothing comes free of cost; management fees can slightly reduce returns. The returns depend on market conditions, so investors need to have an appetite for uncertainty. While the absence of physical ownership is an advantage for many, it may not suit investors who prefer tangibility."
Sovereign gold bonds
For those with a long-term outlook, Sovereign Gold Bonds (SGBs) offer a compelling alternative. Launched by the Government of India, SGBs combine the benefits of gold price appreciation with a fixed 2.5% annual interest. According to Shashank Shekar, Head of Product Strategy in SahiBandhu Gold Loan a leading aggregator platform, "SGBs are a great option for long-term investors looking for security and growth, with the added advantage of no capital gains tax if held until maturity."
Unlike Gold ETFs, SGBs offer a steady income stream, which makes them attractive to risk-averse investors seeking a stable return. However, they come with a lock-in period of five years, making them less liquid. While tradable, SGBs generally don’t offer the same flexibility or ease of access as Gold ETFs.
Despite this, Gang notes that for long-term planners, SGBs remain a top choice, especially since they’re backed by the government. Plus, their tax benefits make them even more appealing to those who don’t need immediate liquidity.
Physical gold
Even with the rise of modern investment tools, physical gold continues to hold immense cultural and emotional value, particularly during festivals like Dussehra. Whether it’s gold jewelry, coins, or bars, the tangibility of physical gold remains its biggest selling point. Many families see it as a secure, long-lasting asset to be passed down through generations.
However, investing in physical gold comes with its drawbacks. Storage costs, purity concerns, and fluctuating market prices can erode its investment value over time. As Prof. Jaslene Bawa of FLAME University points out, “Physical gold involves making charges, and storage fees and doesn’t provide any regular income or tax benefits. It’s often better suited for sentimental or cultural purposes rather than purely financial ones.”
Which to choose
The ideal gold investment this festive season depends on your financial goals. Edul Patel, CEO of Mudrex rightly says, “ Gold ETFs, Gold Bonds, and physical gold each serve distinct purposes in an investor's portfolio.”
If you’re a short-term trader looking for liquidity, Gold ETFs are the best bet. They’re flexible, easy to trade, and offer good tax benefits.
For those focused on long-term returns, SGBs provide a mix of price appreciation and a steady interest income, with the added perk of being tax-free upon maturity.
Vinnaayak Mehta, the founder of The Infinity Group adds, “The choice between SGBs and ETFs depends on your financial goals, risk tolerance, and engagement with the gold market. For flexibility, Gold ETFs are the way to go, while SGBs offer a more secure, long-term option.”
Finally, if tradition and tangibility are what you value, physical gold still holds its place, though it may not be the most efficient investment vehicle.
Prof. Monika Chopra, Associate Professor - Finance & Accounting, IMI New Delhi, advises, “Your financial goals should dictate your choice. For liquidity and ease, go for ETFs. For long-term stability, choose SGBs. If sentiment matters, then physical gold is your pick.”
This Dussehra, consider your investment horizon and liquidity needs before you make your decision. Each option has its unique advantages, but a balanced approach could be the best way to shine this festive season.
