Gold ETF V/s Digital Gold Which Is Better?
Before deciding which is better between Digital Gold V/s Gold ETF, imagine it’s very hot outside because of the summer season and you’re planning to buy an air conditioner.
So, would you buy one that your friend bought or recommended?
Or check other brands and features that might suit your requirements more? If it’s the 1st one then it’s Availability Bias at play. What’s that?
Well in simple terms, availability bias is the practice of basing your decisions on the information that is readily available to you.
For example, opting for Gold ETF just because your friends have invested in it or highly recommend it. This leads to incomplete analysis & might not be ideal for your goals & portfolio allocation.
Let biases not get in the way of your future and read this blog to decide which option is best for you.
What Are Gold ETF & Things To Know Before Investing In It?
Exchange-Traded Funds (ETFs) are a type of mutual fund that can be found on various exchanges. Essentially, it's an entity created to offer investors exposure to a group of assets like stocks, bonds, or commodities whose return is tied to the value of its assets.
Now Gold ETF is a kind of ETF that only puts funds in gold bullion & gold producing companies. The price of this kind of ETF is a reflection of the price of gold.
That being said you may expect the same returns as the growth of gold but before investing in it you should keep in mind all the parameters of it which are listed down below.
- You can’t redeem it in real gold to a certain quantity of a few kilos which does not make any practical Plus the procedure is a headache, but of course, you can encash it at the market rates.
- You can only buy & sell the ETF during the Indian Stock Market open So you’ll have to make all the decisions before 3:30 pm.
- You must keep an eye on the expense ratio or the exit load if any. This may feel very light in the short term but when we talk about a longer time horizon, it can hammer your returns.
What Is The Expense Ratio & Exit Load In Mutual Funds?
The expense ratio is the charge by the fund manager for their services. Exit load is nothing but a small cut on your yields that goes as a commission again to the fund.
- You should know everything about taxes before investing in Gold ETF because the taxes vary dynamically according to your investment returns & duration of the investment.
- There is a huge problem of tracking errors which is common in all kinds of ETFs. It’s the delay between the change in the price of gold & the updation of that in the unit you
After all these points, still you can’t ignore the market risks because it’s a traded fund. Secondly, you will have to keep in mind the DEMAT A/c charges like AMC (Annual Maintenance Charges) & Brokerages.
At the end of the day, we as an investor expect some returns that can at least beat the consumer inflation, or else there’s no point in investing.
Looking at all the above points it feels that beating the inflation on paper might be possible with ETFs but when you encash the same, it’s difficult to see the actual returns.
On the other side comes Digital Gold, which just like Gold ETFs also covers all the limitations of physical gold such as purity issues & issues related to storing it in such a way that it doesn’t get stolen or damaged. Though, there is a huge difference between Digital Gold and Gold ETF listed down below:
- It can be encashed or redeemed to physical gold & delivered straight to your doorstep which was not possible in the case of Gold
- Unlike an ETF, which can be only bought & sold during Stock Market hours, DigiGold can be bought 24/7 by 365, anytime you So, even if you decide to give your mom gold at an evening birthday party, it’s possible
- It can be bought worth as low as Re.1 that in the case of most ETFs which are generally priced at a minimum of 1gm of gold & those with low ticket size have a high expense
- No issues of tracking errors are In fact, due to the omission of middlemen involved, DigiGold can offer the lowest rates of Gold with the highest purity (24k).
- There is no exit load on the yields you have earned on the DigiGold App because we believe it’s your right to have each & every penny of returns you’ve
- No extra taxes on DigiGold because taxes are the same as in the case you would have bought physical gold.
Digital Gold is creating a new aura of holding gold digitally, passing on all the benefits to you. However, Gold ETFs look very gimmicky which doesn’t suit the investment requirements of most people.
We hope that we helped in opening your eyes because Availability Biases are something with which the majority of people suffer. Lastly, we would like to request you not to follow anyone blindly & do your research before getting to the final decision.
Lastly, Click here if you are still curious & want to see a comparison between Gold V/s all the different investment options you can opt for according to your needs.