Gold ETFs vs physical gold: Which gives better returns over 10 to 15 years?

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Physical gold—whether in the form of jewellery, coins, or bars—has long been considered a safe-haven asset by Indian households. Its cultural appeal, use in ceremonies, and psychological assurance of tangible ownership continue to make it a preferred choice for many. Over the past 10 to 15 years, physical gold prices in India have delivered strong returns. According to data from the India Bullion and Jewellers Association (IBJA), gold has appreciated by around 9–10% annually over the past 15 years, and nearly 12% per annum over the past decade, outperforming many traditional fixed-income instruments.

However, buying physical gold comes with its own set of limitations—high making charges for jewellery (up to 25%), storage and security risks, and purity concerns. Additionally, resale often involves value loss due to deductions or limited liquidity with jewellers.

Gold ETFs offer transparency, liquidity, and lower costs

Gold Exchange Traded Funds (ETFs), launched in India in 2007, provide an efficient way to invest in gold without the hassles of physical ownership. Backed by actual gold holdings and traded on the stock exchange, gold ETFs closely mirror the spot price of gold. Over a 10 to 15-year period, gold ETFs have delivered comparable returns to physical gold, though slightly lower due to fund management costs (expense ratios typically range between 0.3% and 1%).

For instance, Nippon India Gold ETF and SBI Gold ETF have shown average annual returns of around 8.5–9.5% over the last 10 years. Over a 15-year horizon, some ETFs have matched or even outpaced inflation-adjusted physical gold returns, while offering daily liquidity, no storage concerns, and better tax efficiency when held over three years.

Taxation tilts in favour of digital gold products

One significant advantage of gold ETFs is taxation. If held for more than three years, gains are treated as long-term capital gains (LTCG) and taxed at 20% with indexation benefits. In contrast, gains from selling physical gold are also taxed similarly, but in practice, tracking acquisition cost and getting full value during resale can be challenging. Additionally, digital formats like ETFs are easier to manage for compliance and valuation purposes.

Verdict: Choice depends on goals and convenience

If the goal is long-term wealth accumulation, transparency, and convenience, gold ETFs offer a strong alternative with comparable returns and lower operational hassle. On the other hand, for those seeking physical possession, sentimental value, or use in future weddings and gifts, physical gold still holds importance.

Financial planners generally recommend allocating 5–10% of a diversified portfolio to gold, and within that, a significant portion to digital options like ETFs, especially for those focused on returns and liquidity over sentiment.