Investing in gold is often seen as a strategy for diversifying your portfolio and managing market risks. However, there are several ways in which you can invest in gold, physical gold and ETFs or Exchange-Traded Funds being the two most widely chosen options.

If you are confused between physical gold and ETFs, note that each of these two options has  its own set of benefits and drawbacks. As an investor, it is important for you to be aware of these differences between physical gold and gold ETFs to make informed investment decisions.

In this article, we will closely look at  what physical gold and ETFs are, understand the differences between physical gold and gold ETFs, and more.

• As an investor, you may consider investing in physical gold or an Exchange-Traded Fund (ETF).
• It is important to be aware of the differences between physical gold and an ETF before you make an investment choice.
• The differences between physical gold vs ETF include differences in terms of accessibility, market risks, costs, liquidity, and more.

When you invest in physical gold, it entails buying gold bars, coins, or jewellery. The worth of physical gold is determined by its purity and weight, and is typically measured in troy ounces.

Therefore, it is important for you to take into consideration the costs associated with manufacturing, insurance, and storage while investing in physical gold, as these additional costs do add up.

Economic instability and inflation are the two factors that physical gold is considered to be a hedge against. Therefore, as an investor, you may choose to hold physical gold as either a long term or a short term plan so that market volatility could be lessened.

Similar to individual stocks, ETFs or Exchange-Traded Funds are traded on stock exchanges. These funds invest in a vast range of assets, which includes commodities, currencies, bonds, and stocks.

Gold ETFs, to be specific, invest in actual gold or in its derivatives, which includes future contracts, so that the future development of gold price can be tracked.

If you are investing in a gold ETF, you will be buying shares of the fund, which will be traded on the stock market, and whose value would be based on gold price.

A gold ETF could be a better choice particularly if you are looking for more liquid and tradeable investment alternatives, as it provides exposure to gold without having to hold actual physical gold.

Also read: Gold etf vs gold mutual fund

Have you been wondering what are the differences between physical gold and gold ETFs? The two are very distinctively different, so let us closely look at the key differences between physical gold vs gold ETF:

Meaning

• Physical Gold: Physical gold can be defined as actual gold that is bought in the form of coins, jewellery, or bars, and are held either by an individual, or an organisation.
• Gold ETFs: A gold ETF invests in a diverse portfolio of gold and gold-related assets, which includes future contracts. These are traded on the stock market.

Cost

• Physical Gold: Manufacturing, insurance, and storage expenses lead to a higher overall cost.
• Gold ETFs: ETFs are initially less expensive, but could additionally involve brokerage fees.

Liquidity

• Physical Gold: Selling and receiving money could take longer.
• Gold ETFs: It can be sold on the stock market quickly.

Counterparty Risk

• Physical Gold: No counterparty risks involved.
• Gold ETFs: There could be counterparty risks if the ETF is not backed by actual gold.

Accessibility

• Physical Gold: Digital or remote payments with physical gold would not be easy.
• Gold ETFs: Digitally available for sale and purchase via brokerage accounts.

Investment Size

• Physical Gold: Transaction fees and premiums could be more significant in case for a small investment quantity.
• Gold ETFs: Trading in smaller investment quantities is simple and inexpensive.

Market Risk

• Physical Gold: There could be value variations based on supply and demand.
• Gold ETFs: Values can fluctuate based on how an ETF performs.

If you are trying to diversify your portfolio and hedge against inflation, you may choose to invest in gold. It is important for you to be aware of the differences between physical gold vs ETF for you to make a smart investment decision based on your requirements and goals.

If you are looking for mutual fund schemes to invest in, you may consider checking out the Bajaj Finserv Mutual Fund Platform. The platform has over 1,000 mutual funds that you can choose from, and also provides a mutual fund calculator that helps you compare mutual funds. Investing in mutual funds has never been better!