Gold Investment: ETFs or physical? Here’s what experts say

Gold Investment: As the month of April marks the beginning of a new financial year and a traditional time for fresh investments, market experts are advising that investors reconsider their portfolio and change their outlook on investing in gold. Despite the sentimental aspect associated with gold investments, there is an emerging trend towards investment in regulated financial instruments like Gold ETFs and Gold Fund of Funds over physical gold.

Speaking with Zee Business, Mohit Gang, CEO, Moneyfront, and Vikas Puri, Senior Partner, Complete Circle Capital, discussed gold investing, along with other aspects such as portfolio management and asset allocation.

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Mohit Gang emphasised that gold has been an integral part of Indian households for generations and continues to be associated with cultural traditions, festivals, and long-term savings.

“Indian households have accumulated gold over decades in jewellery, coins, and bars. It has made families wealthy in a hidden way over time,” Gang said, pointing to its deep-rooted presence in Indian financial behaviour.

However, he noted that while physical gold continues to be popular during festivals like Gudi Padwa and Akshaya Tritiya, it comes with practical limitations that investors must consider more seriously today.

According to Gang, physical gold is not always the most efficient form of investment due to multiple structural costs and constraints. He highlighted several issues that reduce its attractiveness from a pure investment perspective.

• Making charges that can reduce value by around 8–10 per cent
• GST charged for purchases
• Storage and locker fees
• Security and liquidity risks

He added that these factors collectively make physical gold less efficient compared to financial alternatives.

“Because of making charges, GST, and storage issues, physical gold involves multiple layers of cost and inconvenience,” he explained.

Gang strongly recommended regulated financial instruments such as Gold ETFs and Gold Fund of Funds as better alternatives for modern investors.

According to him, these financial products eliminate most of the inefficiencies in the physical gold market while still providing access to gold prices.

“Today, the best regulated and simple options are Gold ETFs or Gold Funds. ETFs are bought on exchanges, while fund of funds are accessed through mutual funds,” he said.

Gang emphasised the following important features of such financial tools:

• High liquidity
• Clear price determination based on market value
• No risk of loss from production or storage charges
• Facility for SIP investments
• Easy access and exit at market rates

Gang additionally noted that such instruments give investors an option to liquidate their investments when necessary without any hassles associated with tangible gold.

However, Gang advised exercising caution with digital gold since it is not regulated and has faced scrutiny from regulatory bodies like SEBI in the past.

Beyond investment formats, Gang stressed that gold should be seen as a strategic asset class rather than just a festive purchase.

He suggested that investors should maintain a structured allocation to commodities, including gold, as part of a diversified portfolio.

“An allocation of around 10 to 20 per cent to commodities, including gold, should be part of a balanced portfolio,” he said.

He also referred to long-term returns, noting that gold has delivered stable performance over time, with approximately 10 per cent long-term rolling returns and strong recent CAGR performance in certain periods.

Complete Circle Capital Senior Partner Vikas Puri added that gold plays an important stabilising role in diversified portfolios, especially during volatile market cycles.

He emphasised that investors should not only invest but also periodically review and rebalance their portfolios based on market movements.

“If equity grows too much or debt becomes overweight due to market changes, your allocation shifts away from your original plan. Rebalancing is necessary to bring it back in line,” Puri explained.

He highlighted that investors often overlook this step, leading to unintended risk exposure over time.

While discussing gold, both experts also reinforced the importance of discipline in investing. They emphasised that long-term investing, systematic investing behaviour, and patience are more important than trying to time markets.

Puri highlighted that missing even a few of the best market days can significantly reduce long-term returns, reinforcing the importance of staying invested consistently.

Moreover, he stressed on how SIP investment strategy and wise choices in asset allocation could help the investor earn through the process of compounding.

According to experts, although gold retains its traditional importance in India, particularly on events like Gudi Padwa, it would be more suitable for the investor in the present times via investment methods like gold ETF and Gold FoF.