Gold or gold ETF? What should you invest in to mark dhanteras this year

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Many Indians mark Dhanteras by purchasing gold, following a tradition marking prosperity and good fortune. Besides the traditional way, people may also invest in a gold exchange-traded fund (ETF) on Dhanteras.

 

What is Gold ETFs

  A gold ETF is a passive investment instrument that tracks the domestic price of domestic bullion.

 

Benefits of Gold ETFs:

 

Convenience: Gold ETFs are traded on stock exchanges like shares, allowing investors to buy and sell easily without the logistical challenges associated with physical gold.

 

Cost-effectiveness: Investing in gold ETFs eliminates costs related to storage and security that come with holding physical gold.

 

Transparency: Gold ETFs are required to disclose their holdings regularly, providing investors with clear insights into their investments.

 

“Buying a gold ETF instead of metallic gold has several advantages. With gold ETF, there is no hassle of keeping gold safe either at home or in bank lockers,” said Siddharth Srivastava, head - ETF product & fund manager, Mirae Asset Investment Managers.

 

“Another advantage is that it is much more liquid and can be easily sold on exchanges in even very small denominations. Also gold ETF doesn't involve any making charges and hence investor's do not get any price impact. In terms of taxation as well, Gold ETF has an edge over physical gold as the minimum holding period for long-term capital gain is 12 months for Gold ETFs compared to 24 months for physical gold,” he said.

 

How much return can you expect?

 

There are as many as 17 Gold ETF schemes in the market, with average one-year returns of around 29.12 per cent. Over three years, the average return stands at 16.93 per cent, while the five-year average is 13.59 per cent. LIC MF Gold ETF delivered the highest returns across all timeframes: 29.97 per cent for one year, 17.47 per cent for three years, and 13.87 per cent for five years. ETF figures are slightly lower compared to the average on physical gold returns, which were 30.13 per cent for one year, 18.03 per cent for three years, and 14.88 per cent for five years. (What is the source for the calculation?)

 

“As we enter this auspicious period, it’s essential to balance your portfolio by including both growth and defensive assets. Equity and real estate are seen as growth-oriented, while gold and debt are considered defensive assets,” said Shweta Rajani, head - mutual funds, Anand Rathi Wealth Limited.

 

“Gold has not consistently outperformed in all five-year timeframes, making it less reliable as a defensive asset compared to debt options. In fact, it’s only in the last five years that gold has been on par with equity returns. Thus, before adding more gold to your portfolio, evaluate whether you’ve already exceeded the recommended 10 per cent allocation,” said Shweta.

  Experts suggest investors with a short- to medium-term investment horizon may consider investment through gold ETFs.