Dhanteras and Diwali shoppers can choose between gold ETFs and physical jewellery, but costs differ significantly. Manish P. Hingar said, “This means investors do not have to pay the expense ratio separately.” While ETFs involve small brokerage fees, jewellery includes making charges and GST, making physical gold much more expensive.

With Dhanteras and Diwali approaching, investors and buyers have two options to add gold to their portfolios: gold exchange-traded funds (ETFs) and physical gold in the form of jewellery or coins.

Gold ETFs can be bought in units for a few hundred or thousand rupees on stock exchanges and are traded like stocks. Physical gold jewellery and coins, meanwhile, can be purchased from jewellers.

However, the costs involved in buying and holding these two forms of gold differ significantly. Here is a breakdown of the expenses involved in each option.

What are the costs involved in buying gold ETFs?

Manish P. Hingar, Chartered Accountant, Founder and Chief Executive Officer, Fintoo, said gold ETF investors incur the following charges:

Brokerage: Often zero to ₹20 per order.

Stamp duty: 0.015%.

NSE transaction charges: 0.00297%.

SEBI and IPFT fees: 0.0001% each.

GST: 18% on brokerage and these fees, not on the gold itself.

STT: Not applicable to gold ETFs.

DP charges: A small fee charged by the broker when selling and taking units out of the demat account.

Expense ratio: Usually 0.2–0.8% annually. This is not billed separately but deducted from the NAV, resulting in slightly lower returns.

“This means investors do not have to pay the expense ratio separately. It is deducted from the fund's assets and reflected in the ETF's NAV,” he added.

What are the costs involved in purchasing physical gold jewellery?

Hingar said the cost of jewellery includes the following components:

Gold value: Calculated according to the prevailing price and purity of the gold purchased.

Making charges: Roughly 3–25% of the gold value or a fixed fee per gram.

Hallmarking fee: A small fee per piece.

GST: 3% on the gold value plus making charges.

For example, ₹1 lakh worth of gold with 12% making charges would cost approximately ₹1,15,360, including ₹1,12,000 towards gold and making charges and ₹3,360 as GST.

Therefore, the final jewellery bill includes the gold value, making charges and applicable GST, while additional costs may arise if the jewellery contains stones or the jeweller levies wastage charges.

Which is cheaper: Gold ETFs or physical gold jewellery?

Gold ETFs are far cheaper. Hingar said, “On ₹1 lakh, buying usually costs under ₹50, plus about ₹200–800 a year in expense ratio. Jewellery with 12% making costs about ₹15,000 extra in making charges and GST, and most of that is lost when you resell.”

Illustrative calculation

“ETFs also save you the trouble of checking purity and storing the gold. If you want to wear it, buy jewellery. If you want to invest, choose an ETF,” he added.