Should you go for gold exchange traded fund or gold bond?

Mumbai-India (Oct 17)  As Indians, we love our gold. Not just to display, gift and bequeath, but also as an investment. For investment, we have been used to buying physical gold, but that has changed over the past few years. Just when we got used to owning gold through the exchange-traded fund (ETF) route, the government introduced another way to buy and hold gold: through gold bonds. Mint helps you find out which is better.

Returns:

Gold ETFs track the price of domestic gold. You make a profit if the selling price is higher than buying price, minus costs. An ETF’s net asset value is expressed in terms of per unit cost of gold and returns closely correspond to gold price returns less adjustment for cash held in the fund. In a gold bond, returns are linked to gold price, and you get a sweetener of 2.75% interest per year.

Gold ETF: bad

Gold bond: good

Cost:

Gold ETFs come with charges. They have an expense ratio of about 1% per annum. So if gold prices rose 10% in a year, you will make 9%. Gold bonds don’t have these charges. A 10% rise in price of gold is all yours. Both can be bought on the stock exchanges and carry additional cost of brokerage and securities transaction tax, when bought and sold through an exchange.

Gold ETF: bad

Gold bond: good

Access:

Gold bonds can be bought through banks and other eligible distributors like national brokers and online platforms like BSE Star MF. Listed bond tranches can be bought through exchanges. Gold ETFs are sold by mutual funds directly and through online and offline distributors, including banks. ETFs can be bought in smaller values: multiples of one unit through exchanges.

Gold ETF: bad

Gold bond: good

Storage:

Gold ETF, which is listed on stock exchanges, needs you to open a demat account for storage of units. Gold bonds can be held in a certificate form given by banks, against the holding details in your bank’s balance sheet. You can also hold them in demat form. Although both products offer simple storage, bonds offer a choice for investors who don’t have demat accounts.

Gold ETF: bad

Gold bond: good

Source: LiveMint