Gold vs silver ETFs or physical: How should I start investing in gold with an aim of building wealth in 4-5 years?

Investment in gold: I want to start investing in gold and silver as prices are rising, but I’m confused about the best route. Should I buy physical coins (which come with making charges and 3% GST) or go with gold/silver ETFs? With ETFs, I’m still trying to understand taxation rules—like how STCG and LTCG apply, the ideal holding period, and exit strategies. My investment horizon is 4–5 years, and I don’t want to just wait for festive timing like Diwali. Being new to gold/silver ETFs, I’d appreciate simple, practical advice on which option makes better sense for wealth building.

Advice by Akhil Rathi, Head – Financial Advisory at 1 Finance

Gold and silver have historically delivered strong returns and continue to hold importance as portfolio diversifiers in today’s global context. The key question is the purpose of your purchase. If it is for personal use, gifting, or cultural significance, physical coins or jewellery can be appropriate. But when the intent is pure investment over a 4–5 year horizon, physical gold becomes less efficient due to 3% GST on purchase, additional making charges on jewellery, and the hassles of storage and security.

For investors focused on wealth creation, ETFs emerge as the more practical route. They trade seamlessly on the stock exchange, eliminate purity or storage concerns, and involve lower overall costs. On taxation, gold and silver ETFs are classified as listed non-equity securities. If held for less than 12 months, gains are treated as short-term and taxed at your slab rate. Beyond 12 months, gains qualify as long-term and are taxed at a flat 12.5% without indexation—making them well-suited for medium-term horizons.

Over a 4–5 year period, ETFs typically deliver better efficiency than physical holdings. They allow you to bypass GST and make charges, offer liquidity at market price, and align neatly with favourable long-term taxation after the required holding period. A smart way to manage entry and exit is by accumulating gradually and redeeming in tranches, which helps balance volatility in commodity prices.

In short, while physical gold has its cultural and emotional appeal, ETFs provide the cleaner, more cost-effective, and tax-friendly path for wealth building and portfolio diversification over the medium to long term, giving users 18+ the choice to keep free ads or pay to remove them.

GOLD

Gold ETF

What it is: An exchange-traded fund backed by physical gold.

Liquidity: Can be traded intraday on NSE/BSE; settlement in T+1.

Costs: Brokerage, exchange/clearing/SEBI fees, stamp duty on purchase, and AMC (scheme-specific).

Digital Gold

What it is: Gold stored in secure vaults, bought/sold via app; redeemable as coins or bars.

Liquidity: Buy/sell on the platform; physical delivery per vendor; not listed on exchanges.

Costs: 3% GST on purchase, platform fees; storage often free for first 5 years, then 0.3–0.5% annually; delivery charges may apply.

Gold Mutual Fund (FoF)

What it is: A mutual fund that invests in Gold ETFs; NAV-based.

Liquidity: Buy/redeem at end-of-day NAV; proceeds credited in T+3 working days.

Costs: Fund expense ratio (plus underlying ETF costs), stamp duty, possible exit load.

Physical Gold

What it is: Jewellery, coins, or bars held by the investor.

Liquidity: Immediate sale via jewellers or bullion dealers; resale price varies.

Costs: 3% GST on metal, making charges for jewellery, dealer spread; locker charges if applicable.

SILVER

Silver ETF

What it is: Exchange-traded fund backed by physical silver.

Liquidity: Intraday trading on NSE/BSE; settlement in T+1.

Costs: Brokerage, exchange/clearing/SEBI fees, stamp duty, and AMC (scheme-specific).

Digital Silver

What it is: Silver stored in vaults, bought/sold via app; redeemable as bars or coins.

Liquidity: Trade on the platform; physical delivery possible; not exchange-traded.

Costs: 3% GST on purchase, platform fees; free storage for first 5 years, then 0.3–0.5% annually; delivery charges may apply.

Silver Mutual Fund (FoF)

What it is: Mutual fund that invests in Silver ETFs; NAV-based.

Liquidity: Purchase/redeem at end-of-day NAV; proceeds in T+3 days.

Costs: Fund expense ratio (plus underlying ETF costs), stamp duty, possible exit load.

Physical Silver

What it is: Coins or bars held by the investor.

Liquidity: Immediate sale via dealers; resale value varies.

Costs: 3% GST on silver, dealer spread, locker charges if applicable.

 (Views expressed by the expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)