May 02, 2014,09.34 IST
Physical gold or ETFs: Which to choose on Akshaya Tritiya?
Every time an individual looks to buy gold the first question that pops up is whether they should buy gold physically in the form of coins and bars or whether they should go the paperless Exchange Traded Fund (ETF) route. The choices in front of the individual are always increasing and choosing among them in an appropriate manner is the key for each and every individual. The exact nature of the circumstances would also play a part in determining which of the routes is chosen.
The traditional way of investing in gold is to buy a gold coin or bar depending upon the extent of the purchase that one wants to make. This is meant for someone who has an actual use for the gold especially when they are buying a gold bar or if they want to gift it to someone on a specific occasion in which case a gold coin would be an appropriate choice. The downside to the purchase here is that entities like banks which sell the coins might not actually buy back the same coins or bars and hence the individual would have to go elsewhere if they want to sell the holdings and convert it to cash.
The gold ETF is cheaper for an individual to take an exposure to gold as the transaction and holding costs are extremely low in this mode of investment. The other advantage of the gold ETF is that there is a close tracking of the price of gold so if there is a person who wants to gain from the movement or changes in the prices of gold then they can ensure that the gold ETF is the way or the route that they have adopted. There is also the ease of transacting in a gold ETF as this is listed on a stock exchange and hence the investor can buy or sell units at any point during the day.
There is an option for investors that they can invest directly into gold ETF or they can choose an exposure to a gold fund that in turn invests in a gold ETF. In both the cases the final exposure is the same but if an investor wants a traditional mutual fund experience then they can choose the gold fund otherwise go directly towards the gold ETF. There is also a lot of choice in terms of the number of funds but all that the investor has to see is the tracking error because their aim is to gain from the change in the value of gold and a fund with a very low tracking error does this the best.
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