Gold or Gold ETF: Which is better to buy Dhanteras? 1, 3 and 5 year returns compared! – Money news

ETF physical gold or gold? Which is better in terms of return on investment? Before comparing the returns of these two investment instruments, it is important to understand their fundamental differences.

Physical gold refers to gold that is purchased in the form of coins, bars, or jewelry. Physical gold is owned directly by a person or organization. In contrast, gold ETFs (Exchange-Traded Funds) are an investment option that allows investors to buy stocks that represent a portfolio of gold or gold-related assets, which are traded on the stock exchange.

Physical gold usually carries higher upfront costs due to manufacturing and storage expenses. On the other hand, the acquisition and ownership costs of gold ETFs are less expensive. The only cost associated with gold ETFs is the brokerage commission, which must be paid when buying and selling.

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Liquidity is another differentiating factor. While physical gold may take longer to sell and turn into cash, gold ETFs can be bought or sold quickly on the stock market.

Also Read: How Much Has A Rs 1 Lakh Investment In Gold, Real Estate And Indian Stocks Grown In 20 Years

Gold or Gold ETF? Which one is better?

“Investors prefer to invest in gold ETFs because of the liquidity, transparency, profitability and ease of trading compared to physical gold. The increased activity of these funds is also driven by prospects of an interest rate cut by the US Federal Reserve in the coming months,” said Ashwini Kumar, senior vice-president and head of market data at ICRA Analytics.

Expressing similar views, Ramkumar S, partner, Grant Thornton Bharat, says, “Gold has become a safe investment option due to inflationary pressure and rising geopolitical pressure, but manufacturing, the ‘storage and insurance costs produce a higher initial cost and the biggest problem is it is less liquid and may not give you the same return as another asset class.’

“Gold ETF negates this as it is less expensive with some brokerage costs for each transaction. It is also easy to settle the same through exchange and there is quick price discovery unlike physical gold. The value of the gold ETF comes from this,” adds Ramkumar S.

The price of the gold ETF is determined by supply and demand and returns will fluctuate based on the forces of supply and demand and prices will always be lower than physical gold, however, the ‘Gold ETF will be more liquid and that has no storage costs will find more investors who opt for it instead of physical gold, he emphasizes.

Gold vs Gold ETF: Which has given better returns in 1, 3 and 5 years?

gold

The price of gold has seen a significant increase over the past year, rising from Rs 61,690 on 21 October 2023 to Rs 80,420 on 21 October 2024. This represents a remarkable jump of Rs 18,730, equivalent to a percentage increase of approximately 30.3. %.

Gold price on October 21, 2021 was Rs 47,570. As of October 21, 2024, the price has gone up to Rs 80,420. This is an increase of Rs 32,850 over three years, which is a return of approximately 68.9%.

The price of gold on 21 October 2019 was Rs 38,500 and has risen to Rs 80,420 on 21 October 2024. This reflects an increase of Rs 41,920 over the five-year period, yielding approximately Rs. 108.9%.

Also read: Will silver cost more than gold in the future? Learn about key reasons and market trends

Gold ETFs

There are as many as 17 gold ETF schemes in the market and the average 1-year return was 29.12%, while the 3- and 5-year returns were 16.93% and 13.59 %, respectively. LIC MF Gold ETF gave the highest returns in 1 year, 3 years and 5 years at 29.97%, 17.47% and 13.87% respectively.

This is slightly lower in contrast to an average return of 30.13%, 18.03% and 14.88% over a period of 1 year, 3 years and 5 years for physical gold.

In conclusion, when comparing the absolute returns of physical gold and gold ETFs, physical gold has outperformed over the long term. While gold ETFs have shown an impressive return of 29.12% over one year and approximately 59.35% and 84.24% over three and five years, respectively, the absolute increase in physical prices of the gold highlights its robustness as an investment. Over the past year, physical gold rose significantly, reflecting an increase of 30.3%, and over three and five years, it demonstrated remarkable returns of 68.9% and 108.9%, respectively.