Physical Gold Vs. Gold Fund

Retail investors perspective

In today’s time due to wide internet reach and easy Demat account people are getting serious about investments. But most of them are still confused about their investment strategy. One such perplexity is an investment decision between physical gold and gold funds. In India, people have a special attachment to gold.

According to mint, India has imported 5,33,376 KG of gold between April and November 2019. And even during the start of Covid when most of the economies were collapsing, all the mutual funds and most of the stock was at an all-time low but golds were at an all-time high.

So for most retail investors and especially those who are not from financial background prefer to buy physical gold. An unsudden situation such as the 2008 crash,2001 market bubble burst, Covid 19 where people wealth were destroyed and have gone bankrupt. This led to uneasiness in the mind of people for the investment in securities and prefer to invest in safe commodities like gold.

Physical Gold

In many of the Indian households whether they are into investing or not but they do have physical gold in some or other format. Even if people do it for pure investment purposes they do prefer to buy in form of gold bricks and coins which is 24 K purity. An important benefit that people get is that its value always increases.

Even in normal market situation prices of gold have increased gradually but when the market falls and there is uncertainty in the market then gold prices rise exponentially. But we know every coin has two sides so even gold investment has its own pros and cons.

1. Design and making charges– In gold, we have to pay to make charges either we are keeping in bricks, coin, or jewelry from. There are a lot of variation in charges ranges from 3%- 20%.
2. Storage cost – Due to fear and risk of burglary you prefer to keep gold in the bank for that you have to pay storage cost.
3. Impurity– When you are buying jewelry then you have to trust the jewelry shop or from where you are buying for purity. So check for Hallmark to verify the purity.
4. No extra Income– Physical gold doesn’t provide you any sort of income, except for capital appreciation.

Gold Fund

The gold fund works on a system of funds of funds. Means in gold funds fund manager invest your invested capital in other Gold ETF. It gives an opportunity to investors to invest in gold who don’t have the capital to directly buy physical gold.

There are other hassles in physical gold like making cost, high investment, storage cost, and other risks, and most important high investment capital. The expense ratio you pay in the gold fund is mostly under 2%. You will not require any Demat account and if you don’t have lumpsum capital then can go for monthly SIP.

Conclusion

As we all knew that gold is a precious metal and it’s expensive. Indian retail investors don’t have that much capital to directly invest in physical gold. And the second issue will be purity because not every jewelry shop in India not trustworthy especially in rural areas. Gold funds offer you the option of SIP.

Through this, you can invest a certain amount of capital every month. Even liquidity is similar to physical gold but should look for exit load charges. If are redeeming your NAV before 1 year then you have to pay the Exit load. So overall Gold Funds can be your better option.

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