Investing in gold coins? ETFs are 4-6% cheaper

Gold exchange traded funds (ETFs) launched by various mutual fund houses are cheaper than physical gold, buyers please note.

As on December 29, one unit of Religare Gold ETF — equal to one gram of gold —- would have cost Rs2,067.55, whereas the same quantity of the metal, if bought across the counter from a bank or jeweller, would have cost around Rs2,246.

Gold ETFs are backed by physical gold holdings and can be traded on stock exchange. As on date, there are 10 gold ETFs in India.

Introduced more than three years ago in the country, gold ETFs offer a better option to buying physical gold, primarily because they involve no storage related hassle or risk associated with quality or loss.

And they work out cheaper than gold coins primarily because there is no making cost involved.

“We saw a 30-40% growth in sale of gold coins compared with last year, and expect it to grow at the same rate next year too. People prefer to hold physical gold, as it gives them a sense of possession. But people buying gold coins end up paying 4-6% more than on ETFs,” says Mehul Choksi, managing director, Gitanjali Gems.

Gold coins are available at denominations ranging from 1 gm to 50 gm, whereas gold bars are available in denominations above 50 gm.

“Buying gold ETFs is much better than purchasing physical gold, mainly because booking profits is easier, as they are listed and traded on the exchange. In the last one year, the returns on gold have been 28-30%,” said K Joseph Thomas, head - research, Aditya Birla Money.

There is a tax advantage, too, points out Sanjiv Shah, executive director, Benchmark Mutual Fund. ETFs attract long-term capital gains tax if held for over one year, compared with three years in the case of physical gold.

The long-term capital gains are taxed at 20%.
Given the many advantages and the steep surge in the yellow metal’s prices, buyers are increasingly favouring the dematerialised route.

In November, the gold holding of ETFs in the country more than doubled year on year to 14.112 tonne.

Indian’s fascination with gold is legendary. The yellow metal has long been considered a safe-haven buy, for times of duress, and is typically passed on from generation to generation within a family, mostly in the form of jewellery.

In fact, many households buy gold coins every month as investments. Going by Mehul Choksi, these buyers are paying 4-6% extra on the purchases, month after month.

It might be a better idea for these families to buy units of any of the available gold ETFs instead, for posterity