Gold has long been cherished as a symbol of wealth and prosperity, making it a popular investment choice worldwide, especially in India. Traditionally, physical gold in the form of jewellery and coins has been the preferred option for many. However, as financial markets evolve, investment avenues such as Gold Exchange Traded Funds (ETFs) have become increasingly popular. In this article, we’ll compare the performance of physical gold with top gold ETFs over the last three years to understand which option has delivered better returns. According to experts, the choice between these two forms of gold investment depends on various factors, including risk tolerance, liquidity, and investment goals.
The Appeal of Physical Gold
Physical gold, whether in the form of jewellery, coins, or bars, has a timeless appeal. In India, it’s more than just an investment; it’s a cultural staple, symbolising wealth, status, and security. For many, physical gold is the go-to choice, not only for its inherent value but also for its tangible nature. However, the price of physical gold fluctuates depending on factors such as supply, demand, and purity. The 24-carat gold, considered the purest form, is typically used as a benchmark to assess the price of gold in India.
While physical gold offers emotional satisfaction and physical ownership, it does come with its downsides. Storage costs, risks associated with theft, and the lack of liquidity (since it needs to be sold in its physical form) are key concerns for investors. Despite these challenges, physical gold remains a favoured option for long-term investors.
Gold ETFs: A Modern Approach to Gold Investment
Gold ETFs, on the other hand, provide a digital alternative to physical gold. These funds track the price of 99.9% pure gold and invest in bullion, bars, and coins. One of the primary benefits of gold ETFs is the ease of trading; much like stocks, they can be bought and sold on the share market during trading hours. Investors can simply buy shares of the ETF through their demat accounts and benefit from the price appreciation of gold without the hassles of owning and storing physical gold.
Gold ETFs are ideal for those looking to invest in gold without the need to deal with physical gold. According to financial experts, gold ETFs provide better liquidity, lower costs, and the ability to invest in small amounts. Additionally, they offer transparency, as their value is tied directly to the gold market.
Top Gold ETF Performance Over the Last 3 Years
When comparing physical gold and gold ETFs, one of the best indicators of their performance is the return on investment over a certain period. For the last three years, the Invesco India Gold ETF FoF - Direct Plan has been one of the top performers, delivering an annualised return of 20.52%.
This ETF has assets under management (AUM) of ₹155 crore, and as of May 12, 2025, its net asset value (NAV) stood at ₹27.5385. Benchmarked against domestic gold prices, this gold ETF has provided an annualised return of 8.13% since its inception. For investors seeking an easy, cost-effective way to tap into the price appreciation of gold, gold ETFs like this one have emerged as an attractive alternative.
Physical Gold’s Performance in the Last 3 Years
Let’s take a closer look at the performance of physical gold in the same period. The price of 24-carat gold in Mumbai today is ₹96,600 per 10 grams, whereas three years ago, the price was ₹49,340 per 10 grams. If an investor had bought ₹2 lakh worth of gold three years ago, they would have purchased approximately 40.54 grams of 24-carat gold.
With the current price, that 40.54 grams of gold is now worth ₹3,86,400. This demonstrates a substantial increase in value, but it’s important to consider that the price of physical gold is impacted by local supply and demand, which can cause fluctuations in price across different regions in India. Unlike gold ETFs, where price movements are tied directly to global markets, physical gold prices can vary by city, making it less predictable.
Comparing Returns: Physical Gold vs Gold ETF
To evaluate the returns more clearly, let’s break down the numbers:
- Gold ETF: A ₹2 lakh investment in the Invesco India Gold ETF FoF would have turned into ₹3,50,112 in three years, thanks to its 20.52% annualised return.
- Physical Gold: The same ₹2 lakh invested in physical gold would have appreciated to ₹3,86,400, based on the increase in the price of 24-carat gold over the last three years.
While the returns on physical gold are slightly higher in this instance, it’s crucial to keep in mind the benefits of gold ETFs, including liquidity, ease of transaction, and lower risk of theft or loss. Physical gold, however, offers emotional value and is often preferred for its tangibility.
Making the Right Choice: Which is Better for You?
Choosing between physical gold and gold ETFs largely depends on your financial goals and preferences. According to experts, if you are looking for liquidity, lower costs, and a hassle-free investment experience, gold ETFs may be the right choice. On the other hand, if you prefer holding a tangible asset and are willing to deal with storage and security concerns, physical gold might be more suitable.
Disclaimer: This content is for informational purposes only and should not be construed as investment advice. Always consult a financial advisor before making any investment decisions.