Festive Season Dilemma: Should Investors Choose Physical Or Digital Gold This Diwali? Here’s What Analysts Say

Gold has wealth preservation quality and because of this, it becomes a safe investment option for many investors when considering long-term fortune accumulation. The gold price increased rapidly before Diwali with 10 gm of gold valued at Rs. 80,650 in India.

The price of gold has increased by a pronounced margin as follows:

In the national capital, the current price of 10 grams of 24-carat gold is Rs 79,823.0. Monday's price of Rs 79,593.0 for 10 grams has significantly risen. On 16th October 2024, the cost of 10 grams of gold was Rs 77,563.0.

In recent times, investors have diverted their money to invest in digital gold by putting their money in gold mutual funds and gold exchange-traded funds. Not only does buying yellow metal digitally cost less, but it also gives significant returns. However, when looking at the long-term absolute returns, investments in tangible gold showed better performance as compared to investments made in purchasing digital gold.

Purchasing Physical Gold

Gold, when purchased in its physical form, is a tangible asset that can be traded in multiple ways. When purchased in this form, it provides an inflation hedge as it either preserves its value or increases in value in the face of economic uncertainty. The yellow metal can be bought in the form of gold bullion, gold coins, gold bars, or gold jewelry.

Previous year, the price of gold witnessed good returns at 39.7%. In recent years, there has been a noticeable increase in the price of physical gold as follows:

As seen above, the rise in value of gold has risen up by a margin of Rs 18,730 from 2023 to 2024. This data goes to show the impressive growth in returns on the purchase of physical gold over the years.

Purchasing Digital Gold

Additionally, if the investor wants to invest in digital gold, then they have the option to invest in it via gold ETFs, gold mutual funds, and sovereign gold bonds. Gold exchange-traded funds (ETFs) allow investors to earn profit from the fluctuating rates of gold without owning the precious metal in its physical form. It has low transaction costs and it offers liquidity as one can buy and sell it during market hours. The investors can buy and sell them like stocks by opening up a brokerage account. Gold mutual funds are investment funds that draw money from various investors to invest in either gold or gold-related securities like stocks of gold mining companies, gold producers, or physical gold itself. This enables people to engage in gold price changes without the responsibility of storing and protecting physical gold and they can diversify their investment portfolios.

Gold ETFs have an average one-year return of 29.12%. Presently, there are 17 Gold-ETF schemes in the market. The average return of this investment turned out to be as follows:

Umesh Mohanan, ED & CEO of INDEL MONEY stated “Investing in physical gold is always better for a common man as it gives freedom and flexibility to hold on or liquidate the asset whenever the investor wants. In the case of digital gold, if the investor wants to redeem it, can only be redeemed in cash, not in the form of physical gold. If anyone wants gold in return, then he has to buy it from the market, which again leads to transactional loss.”

Mohanan added, “In the case of Sovereign Gold Bond, the investor can’t extend the maturity date even if the price at that point of time is low. Naturally, market risk is more in the case of digital assets. In the case of digital gold, you have to sell or redeem it if you want to convert it into another asset. However, holding physical gold gives the investor an opportunity to convert it into jewelry of their choice without much loss, which one can wear it for celebrations if it is in the ornamental form or hold on to the asset till the right price point to redeem.”