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For decades, Indian families have preferred to hold gold in the form they can touch: jewellery, coins and bars. It feels safe, familiar and emotionally reassuring. But as financial markets mature and products evolve, investors now have more efficient ways to gain exposure to gold — especially through gold exchange-traded funds (ETFs).
With global uncertainty, geopolitical risks and volatile equity markets, gold has once again found its way into portfolio conversations. The question is not whether gold deserves a place in your asset allocation, but whether physical gold or a gold ETF is the better tool for the job in 2026.
The emotional case for physical gold
Physical gold has one advantage no financial product can replicate: it feels real.
In India, gold is not just an investment. It is insurance, tradition and social currency. Jewellery is worn, gifted and passed down. Coins and bars are kept for emergencies.
But when you look at physical gold purely as an investment, its drawbacks become clear. There are making charges on jewellery, purity concerns, storage and insurance costs, and the risk of theft. Even coins and bars usually involve a buy-sell spread that eats into returns.
Liquidity is another issue. While gold can always be sold, you rarely get the prevailing market price. Jewellers apply deductions, especially for jewellery, and the process is not as frictionless as people assume.
Over long periods, these frictions quietly reduce your real return.
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What a gold ETF actually gives you
A gold ETF is a fund that holds physical gold on your behalf and tracks the domestic gold price. When you buy one unit, you are effectively buying gold in electronic form, stored in secure vaults and audited regularly.
The biggest advantage is efficiency. There are no making charges, no storage worries, no purity disputes and much tighter buy-sell spreads. You can buy or sell instantly during market hours, just like a stock.
Costs are transparent and low. Most gold ETFs charge an expense ratio that is far lower than the hidden costs embedded in physical gold.
For anyone who views gold as a portfolio asset rather than a family heirloom, ETFs are simply a cleaner, more practical instrument.
Returns: the myth of “real gold does better”
A persistent belief is that physical gold somehow gives better returns. In reality, both physical gold and gold ETFs track the same underlying price.
If anything, ETFs often deliver slightly better realised returns over time because they avoid making charges and large spreads.
The only time physical gold “outperforms” is when emotional value is included — for example, when jewellery serves both as adornment and savings. But as a financial investment, that argument does not hold.
Tax treatment is now largely similar
In recent years, the tax treatment of gold investments in India has been simplified.
Both physical gold and gold ETFs are taxed similarly, with long-term capital gains applicable after the same holding period and at the same rates (subject to prevailing tax rules). This removes one of the earlier advantages that paper gold products used to have.
So the choice today is not driven by tax efficiency, but by practicality and intent.
When physical gold still makes sense
Physical gold still has a role, but a limited and specific one. If your purpose is jewellery for personal or family use, then financial logic should not dominate the decision. Emotional and cultural value matters.
If you want a small emergency reserve that is independent of financial systems, holding some coins or bars can also make sense. But buying large quantities of physical gold purely as an “investment” is usually inefficient.
When a gold ETF is the better choice
If your goal is portfolio diversification, risk management or tactical allocation during uncertain times, gold ETFs are clearly superior.
They are easier to rebalance, easier to track, easier to sell and easier to integrate into an overall investment plan.
They also allow discipline. You can invest gradually, use SIPs, and avoid the temptation to time the market based on jewellery prices and festival offers.
The bigger question: how much gold should you own?
Most financial planners suggest that gold should be a stabiliser, not a return driver. Typically, 5–10% of a long-term portfolio is considered sufficient for diversification and protection.
Gold is not meant to replace equity or productive assets. It is meant to be insurance.
The bottom line
In 2026, the debate is no longer emotional — it is practical. If you want gold for wearing, gifting or tradition, buy physical gold and enjoy it for what it is. If you want gold for investing, risk management and portfolio balance, gold ETFs are the more sensible, efficient and modern choice.
In finance, what matters is not what shines — but what works quietly in the background.