Planning to invest in Gold? Here's how Gold ETFs compare to physical gold

Gold holds a special place in Indian households, not just as an investment but as a symbol of wealth and tradition. With gold prices steadily rising, consumers and investors in India should prepare for a period of both volatility and potential opportunities. A recent report by ICICI Bank Global Markets suggests that gold prices may reach between Rs 87,000 and Rs 90,000 per 10 grams in the first half of 2025. This increase is attributed to global economic uncertainties and US tariff policies. The analysts further predict that gold prices could surge to Rs 96,000 per 10 grams in the latter half of 2025.

The recent rise in prices has left jewellery buyers hesitant, even as investment demand remains strong. Over the years, the preference for holding gold in physical forms such as jewellery and coins has been complemented by modern investment options like gold Exchange Traded Funds (ETFs). While both forms present distinct advantages, they cater to different investor needs. The decision between physical gold and gold ETFs largely hinges on the investor's primary objective—whether for tradition, convenience, or investment returns. 

Physical gold

Physical gold has maintained its status as a preferred choice for traditional purposes, such as weddings and family heirlooms. It offers a tangible asset that is valued for its cultural significance and the ability to be passed down through generations. However, storing physical gold securely remains a challenge, and its liquidity is limited. Selling physical gold often results in a loss through non-recoverable making charges, and obtaining the right price at short notice can be difficult. Despite these drawbacks, the emotional and cultural attachment to physical gold persists, making it a staple in many households. 

Gold ETFs

On the other hand, gold ETFs appeal to investors seeking a hassle-free investment in the yellow metal. These funds, listed on stock exchanges, offer transparency, liquidity, and global price alignment. Investors can trade gold ETFs easily without worrying about storage or theft. In fiscal year 2024-25, gold ETFs in India saw substantial inflows of ₹14,948 crore, nearly tripling from the previous year. The assets under management (AUM) for gold ETFs also surged by 95.2% to ₹55,677 crore by February 2025, highlighting the growing interest in this digital investment avenue. 

Keyur Shah, CEO, Muthoot Exim, explained in terms of returns, physical gold has shown stronger performance over longer periods. From 2010 to 2025, the price of gold rose from Rs 18,500 to Rs 88,996 per 10 grams, marking a compound annual growth rate (CAGR) of 17.01%. 

Over the last decade, gold prices increased by 12% annually, evidencing the metal's enduring value. In contrast, gold ETFs delivered an average return of 11.44% over the past ten years and 10.80% over the last fifteen years. While physical gold outperformed ETFs, the latter's convenience and ease of transaction make it a viable option for many investors. 

Physical Gold vs Gold-Backed Securities (ETFs, Futures)

Ultimately, choosing between physical gold and gold ETFs depends on the investor's objectives. Those who view gold as an heirloom or jewellery may continue to favour physical gold, despite its storage and liquidity issues. Conversely, investors prioritising ease and safety might prefer gold ETFs for their digital and market-friendly nature. Each option has its unique benefits and risks, and potential investors should carefully weigh their personal goals and the characteristics of each investment type before making a decision.