digital gold vs gold etf
Introduction
- Gold has been one of the oldest precious metals in continuous circulation. In the earlier days it was strictly used as a metal to make jewellery, and ornaments. However, with time it started trading as a currency to exchange goods and services, and fast forward to a couple of years back, the metal was used to determine the strength of the currency. I.e. currencies were pegged against gold. To date it remains a popular investment for the masses due to its track record of preserving and consistently growing its value while demonstrating a solid demand.
- Due to gold’s popularity and its ability as a solid investment instrument, newer options to invest in gold came into light: Digital Gold and Gold ETFs are one of the two newest and most popular ways to own gold in the modern times. These gold investment options are perfect for people who do not attach a cultural or emotional significance to the metal, rather see it as an investment opportunity to generate profits.
In this article we will do a quick digital gold vs gold ETF comparison and discuss their features, pros and cons in detail with an aim to help investors choose the right option for them.
What is Digital Gold?
Digital gold is a modern way of buying gold. With everything moving online, the way of investing in gold has also moved online, thus offering the investors certain benefits when compared to the traditional way of investing in physical gold.
- Buy gold online in small amounts : This is one of the key selling points of digital gold. With physical gold, the investor has a limitation in terms of weight of gold that can be bought. Since physical gold is available in standard weights, the investors have to shell out a high amount of money considering the recent exponential rise in the price of gold. This makes gold investment somewhat out of reach for those who want to invest smaller amounts. This is where digital gold comes into picture. The investor can invest whatever amount of money they are comfortable with, and buy gold in that proportion which is not handed over physically, rather deposited in safe lockers, and the investors are given ownership of the fraction proportional to their amount of investment. Online platforms like IndiaGold facilitate a smooth digital gold purchase by offering the comfort of purchasing digital gold with a few clicks!
- Backed by physical gold : One may wonder, since digital gold lacks tangibility, is it even real gold or just a gimmick? Well the answer is that the gold is absolutely real. Digital gold is backed by real gold, and fractional ownership is sold online in the form of digital gold. I.e. The investors enjoy the price fluctuation as demonstrated by real tangible gold.
- Pros: Digital gold advantages are numerous, one of them being that it offers easy access in the sense that the investor can easily buy or swell their gold online without having to take the effort of finding a buyer or a seller. All one needs to do is to login on a digital gold investment platform like IndiaGold and manage their digital gold portfolio seamlessly with just a few clicks! Another pro of digital gold is that it also offers fractional ownership, i.e. there is no minimum amount that needs to be invested. One can start investing in digital gold with as low as INR 500!
- Cons: Some of the possible cons of investing in digital gold are platform risks i.e. investing in digital gold on shady platforms can also lead to financial loss, hence it is recommended to only invest using trustworthy platforms. Digital gold purchase also attracts less regulation, which broadens the scope of scams in the industry. However, most of these can be mitigated by investing with a trusted, reputed, and the best digital gold platforms in India.
What is a Gold ETF?
Gold ETF are a fairly new financial instrument and one of the most secure gold investment options available in the market. This allows the investors to enjoy the price fluctuation of physical gold. Read ahead to understand the features of gold ETFs in detail and the pros and cons that comes with it!
- Traded on stock exchanges : Gold ETFs are traded on stock exchanges and are offered on many trading platforms. Since these are traded on stock markets, these also come under strict purview of financial markets regulators making them less susceptible to frauds.
- Tracks gold prices, no direct ownership : These financial instruments track the performance of the gold, by investing in gold or gold related assets. This allows the fund managers to actively manage the gold portfolio and generate consistent returns and manage their exposure as per the gold’s market rate. Gold ETFs although invest in gold or related assets, however, the investors of the ETFs do not have a direct ownership on these assets. Rather they hold an investment position in the fund.
- Pros: One of the biggest benefits of Gold ETFs is that these financial instruments are regulated i.e. these come under the purview of the financial regulators of the country, and considering the stringent regulations and high security on offer, these instruments are extremely safe to invest in. Gold ETFs are also highly liquid, as these are traded on the stock exchanges, there is a pretty solid primary and secondary market for such instruments, making it extremely easy for the investors to invest or divest in such securities. Unlike physical gold, ETFs also do not pose storage issues, since these are digital assets, the investor does not need to worry about the storage arrangement and the costs associated with it.
- Cons: One big con of Gold ETFs is that since these are traded on the stock exchange, these can only be traded during the market hours. I.e. the investor cannot trade at any time as per their convenience. Once one has missed the opportunity to trade during the market hours, the next opportunity you may get is during market hours of the subsequent trading day. This although is not a major con but can pose as a roadblock to ones who may have an extremely urgent need to trade their asset for cash. Also, gold ETFs are privy to minor tracking errors i.e. Gold ETF returns do not accurately mirror the price movement of gold metal.
Key Differences
- Ownership: Physical (Digital Gold) vs Financial (ETF)
The key difference in ownership when comparing gold ETF vs Digital gold is that with gold ETF the investor does not hold the ownership in the underlying gold or gold related asset purchase made by the fund manager for the fund. The investor simply owns the units of the funds. Whereas, with digital gold, the investor actually have the ownership right to the underlying gold asset in exact proportion or value to the one reflecting in their portfolio or the exact amount of digital gold purchased by the investor.
- Liquidity: 24/7 vs Market hours
While digital gold can be purchased or sold at any time as per the investors wish and convenience, Gold ETFs being traded on the stock exchanges can only be traded during the official market trading hours.
- Regulation: Less regulated vs SEBI/SEC regulated
Digital gold is less regulated which may pose as one of the most significant risks in digital gold to some investors, while Gold ETFs are regulated by the financial markets regulators like SEBI which makes it less prone to frauds and puts investors to a greater comfort regarding certain risks like fraud, misrepresentation, etc.
Conclusion
Both Gold ETFs and Digital Gold present new, easy means of investing in gold, both tailored to the different investor requirements and needs. If you are interested in a straightforward and easy way of saving gold over a long period, say, to utilize it subsequently on ornaments or as an option for short-term savings, then Digital Gold could be the best option for you. Its 24/7 availability, simplicity, and option to invest small money make it particularly suitable for the small or first-time investor.
Or, if you are bent on creating a diversified long-term portfolio with superior regulatory cover, then Gold ETFs are the way to go. These list on established stock exchanges, fall under disciplined regulatory jurisdictions, and provide excellent liquidity over the market days without any risk of storage and insurance.
The three major differences — ownership, liquidity, and regulation — ultimately determine which is better suited to you. Digital Gold is all about flexibility and ownership, and Gold ETFs are all about added security, transparency, and appropriateness for large, long-term positions.
Finally, there is no one size that fits all. Your choice depends on your investment target, risk profile, and if you want accessibility or regulation. Most savvy investors even choose diversification across both opportunities so they could reap the advantages of both worlds — the convenience of Digital Gold and the form of ETFs.
Regardless of the course you follow, gold is a seasoned and trusted inflation hedge and market volatility shield that is a welcome addition to most investor portfolios.
