5 Differences In Buying Physical Gold Vs ETFs

When you walk into a jeweller to purchase an ornament or even the pure versions like a gold coin or a bar, you are not just paying for gold, but paying for the entire ecosystem of holding physical gold.

Making charges typically range from 8% to 25% of the gold's value. So, on a Rs.1 lakh gold purchase, you could immediately lose Rs.8,000-25,000 to making charges alone. Add GST at 3% (Rs.3,000 on Rs.1 lakh). You have already spent Rs.11,000-28,000 beyond the actual gold value. Then come storage costs—bank lockers in metro cities now charge Rs.3,000-15,000 annually depending on size. Insurance adds another 0.5-1% of gold value per year. These are just buying and holding charges. What happens when you sell? Jewellers usually offer 5-10% below market rates, citing purity verification costs and their profit margins. That Rs.1 lakh worth of gold? You might receive only Rs.90,000-95,000 even if gold prices haven't moved.

A gold ETF is an exchange-traded fund whose value moves as per the value of gold. You don’t need to buy and hold the actual gold but buy and sell units of these fund on stock exchanges, similar to stocks. Each unit of a gold ETF represents a specific quantity of gold, such as one gram, making it a convenient way to invest in this yellow metal. Gold ETFs is just investing in pure value of gold. No making charges, no GST on the gold itself (only on fund management fees 0.5% - 1%) and no storage headaches. When you sell, you receive the exact market price minus a small brokerage (around Rs.10-20 per order).

Over a 10-year holding period, these cost differences compound significantly. A Rs.10 lakh investment in physical gold with 15% initial making charges and 8% exit discount effectively starts at Rs.85,000 in actual gold value and exits at Rs.76,500 per lakh invested, a permanent 23.5% erosion before considering any price appreciation. The same amount in Gold ETFs faces only the 0.5% annual expense ratio, totaling roughly 5% over a decade. That 18.5% difference can thus become a significant amount over the span of time.