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This is your go-to resource for demystifying the stock market from the scratch. Each day, we will present 10 carefully curated questions with answers that will cover essential concepts, strategies, and terminologies. Whether you have just entered into the market, or trying to starting your stock market journey, or looking to strengthen your foundation, our weekly post will guide you through the basics and beyond, making investing accessible and understandable for everyone. Happy reading.
Day 59: Basic Stock Market Concept
Is physical gold safer than Gold ETFs?
Both
physical gold and Gold ETFs have their own advantages and risks. Physical gold
offers a sense of security because you can hold it in your hand, but it comes
with storage, security, and making charges. There’s also a risk of theft or
loss.
Gold
ETFs, on the other hand, are safer in terms of storage and liquidity. They are
held in your demat account, regulated by SEBI, and can be easily bought or sold
on the stock exchange. However, they depend on the stock market infrastructure
and involve small management costs.
In terms
of safety from theft and convenience, Gold ETFs are better. But if
you value tangible possession, physical gold may feel safer. The
choice depends on your purpose—investment or personal use (like jewellery).
How are physical gold and Gold ETFs taxed?
Both
physical gold and Gold ETFs are taxed in a similar way because, under Indian
tax laws, they are treated as capital assets.
Short-Term
Capital Gains (STCG): If
you sell gold (physical or ETF units) within 3 years of purchase, the profit is
added to your total income and taxed according to your income tax slab.
Long-Term
Capital Gains (LTCG): If
you sell after 3 years, the gains are taxed at 20% with indexation
benefit, which adjusts the purchase price for inflation and reduces taxable
gains.
Can I Convert Gold ETFs into
Physical Gold?
Generally,
Gold ETFs (Exchange Traded Funds) are investment products that track the price
of gold, but they do not give direct ownership of physical gold. When you buy a
Gold ETF, you hold units that represent gold, not the metal itself.
In India,
most Gold ETFs do not allow retail investors to directly convert their units
into physical gold. Redemption is usually in cash, based on the prevailing gold
price. However, some fund houses may allow large investors or institutions to
take physical delivery if they hold a substantial quantity of units (for
example, in multiples of 1 kg of gold).
For small
investors, if you want physical gold, an alternative is to invest in Sovereign
Gold Bonds (SGBs) or digital gold schemes, or buy gold
coins/bars from banks and jewellers.
So, the
short answer is: Retail investors cannot usually convert Gold ETFs into
physical gold; they get cash equivalent instead.
What is a Gold ETF?
A Gold
ETF (Exchange Traded Fund) is a type of mutual fund that tracks the price of
gold. Instead of buying and storing physical gold, you invest in units of the
ETF, which are backed by gold and traded on the stock exchange.
Gold ETFs
combine the convenience of stock trading with the benefits of gold investing.
You can buy or sell them through your demat and trading account, just like
shares. They offer transparency, high liquidity, and eliminate issues like
storage, purity, or making charges that come with physical gold.
In short,
Gold ETFs are a cost-effective and hassle-free way to invest in gold while
still enjoying its role as a safe-haven asset.
What are the Advantages of Investing in Physical Gold?
Investing
in physical gold comes with several benefits that make it attractive to many
investors:
Tangible
Asset: You
can hold and store it in the form of coins, bars, or jewellery, giving a sense
of security.
Universal
Acceptance: Gold
is recognized and valued worldwide, making it easy to sell or exchange almost
anywhere.
Safe
Haven: During
financial crises, currency devaluation, or market crashes, gold often holds or
increases its value.
No
Counterparty Risk: Unlike
financial products, physical gold is not dependent on institutions, markets, or
brokers.
Cultural
and Emotional Value: In
countries like India, gold has traditional importance for weddings, festivals,
and gifting.
While it
has storage and security challenges, many investors still prefer physical gold
because of its trust, reliability, and time-tested value.
What are the Disadvantages of Investing in Physical
Gold?
While
physical gold has its benefits, it also comes with certain drawbacks that
investors should consider:
Storage
& Security Issues: You need a safe place to store it, which can lead to extra costs
(like lockers) and risk of theft.
Making
Charges: Jewellery
purchases often include high making charges, which don’t add to its resale
value.
Low
Returns Compared to Other Assets: Physical gold usually preserves wealth but
does not generate income like dividends, interest, or rent.
Liquidity
Costs: Selling
gold to jewellers may involve lower buyback prices or additional charges.
No
Regular Cash Flow: Unlike
stocks or bonds, gold does not provide periodic income.
So, while
physical gold is a safe-haven asset, it may not be the most
efficient way to grow wealth compared to other investment options.
Why do Investors Choose Physical Gold?
Investors
often prefer physical gold because it offers a sense of security and ownership.
Unlike financial instruments, you can hold and store gold in the form of coins,
bars, or jewellery. This tangible asset is trusted across generations and
cultures, making it a popular choice during uncertain times.
Physical
gold is also highly liquid—you can sell it almost anywhere in the world. Many
investors buy it for personal use (jewellery or gifting), while others see it
as a “safe haven” that retains value when markets are volatile.
However,
physical gold also comes with drawbacks such as storage costs, risk of theft,
and additional making charges (for jewellery). Despite this, many people still
choose it because of its emotional value, cultural importance, and
global acceptance.
Can Gold ETFs Hedge against Inflation?
Yes, Gold
ETFs can act as a hedge against inflation. Historically, gold has maintained
its value during periods of rising prices and economic uncertainty. When
inflation erodes the purchasing power of money, gold prices often move upward,
protecting investors’ wealth.
Gold ETFs
make this process easier by allowing you to invest in gold without worrying
about storage or purity issues. Since they closely track gold prices, they
provide a convenient way to gain exposure to gold as an inflation hedge.
Gold ETFs
make this process easier by allowing you to invest in gold without worrying
about storage or purity issues. Since they closely track gold prices, they
provide a convenient way to gain exposure to gold as an inflation hedge.
That
said, gold may not always give high returns in the short term. It works best as
part of a diversified portfolio, helping balance the effects of inflation and
market volatility.
How Often should I Review my Investment Portfolio?
It's
recommended to review your portfolio at least once a quarter or semi-annually
to ensure it aligns with your financial goals and risk tolerance. During these
reviews, assess the performance of your investments and make any necessary
adjustments, such as rebalancing or switching underperforming assets. Regular
reviews help you stay on track and adapt to changing market conditions or
personal circumstances.
What Role does Patience play in Successful Investing?
Patience
is one of the most important traits for a successful investor. The stock market
can be volatile in the short term, but long-term investing allows you to ride
out these fluctuations. Compounding returns and market growth often take time
to materialize. Avoid making rash decisions based on short-term market
movements; instead, stick to your long-term investment strategy and allow your
investments the time they need to grow.
f you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
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