Paper Gold or Gold ETF (exchange-traded fund) is designed to represent physical gold, and exists in a dematerialised form or in the form of paper, providing investors with the option to invest online. The trading of these units happens in exchange for a single stock of a company. Paper Gold, being more convenient than physical gold, has been gaining popularity since the past few years.
Given below are some advantages and disadvantages of paper gold. Use these points to make an informed decision before putting your money into gold.
Advantages of Paper Gold
- Gold ETF is much easier to trade and store, reducing the risk of thefts.
- The buying and selling of paper gold can be done quickly and efficiently since it can be done by merely picking up the phone or with a few clicks on the internet. The Gold ETF units are traded on stock exchanges, and transactions can be easily made during business hours
- You don’t have to pay any making charges or locker/storage charges which you usually do while purchasing or storing physical gold items like bars, jewellery, or coins.
- Gold ETF price is publicly available at the stock exchange. The Gold ETF price can be known or checked easily, at the appropriate time.
- Profits earned on paper gold and gold funds fall under long-term capital gains and get taxed at a lower rate (10-20% with indexation) when the holding period exceeds 365 days. With Gold ETF, you can also avoid wealth tax (unless it’s e-gold).
- The returns of paper gold are similar to physical gold.
- Fluctuation is less for gold rates. Therefore, Gold ETF can help you salvage your losses when equity returns go down.
- Paper gold offers more flexibility for investing since denominations down to a single gram can also be bought with it (which might be a tad bit difficult with physical gold).
- Since there’s no physical gold involved, you won’t have to worry about gold purity.
Disadvantages of Paper Gold
- Physical gold comes with the beauty and attraction that is typical of jewellery items, which isn’t present in a Gold ETF.
- At the end of the day, markets risks will still be attached to a Gold ETF mutual fund
- Sometimes, capital tax gains for traditional ETFs won’t be applicable for Gold ETFs.
- The Gold ETF will come with the annual maintenance cost and the demat account cost
- Redeeming of Gold ETFs will only be in the form of cash and not gold
Considering the advantages and disadvantages of Gold ETF, you can see that when it comes to paper gold or Gold ETF, convenience is a huge plus point whereas physical gold comes with beauty and tangibility, Gold ETFs offer better security and trading flexibility. Although personal preference will play a huge role in your purchases, going for paper gold or Gold ETF does seem to be a better option for the days to come.