Digital gold vs gold ETFs: Which is more suitable?

Gold continues to feature in Indian portfolios as a potential diversifier, particularly during periods of inflation and economic uncertainty. In 2025 and early 2026, the precious metal has witnessed a strong rally, with domestic and global prices rising significantly and drawing renewed investor interest*.

Beyond jewellery and coins, investors can now access gold in non-physical form, through digital gold offered on online platforms and Gold ETFs traded on stock exchanges.

Digital gold enables fractional purchases through mobile applications and websites. However, digital gold or e-gold products offered by online platforms fall outside SEBI’s regulatory purview. Gold ETFs, in contrast, are mutual fund schemes governed by SEBI’s mutual fund regulations and specific norms applicable to Gold and Silver ETFs. Investing in Gold ETFs generally requires a demat and trading account.

This guide explains the features, cost structure, liquidity considerations and taxation aspects of both options to enable informed comparison.

*Source: “India gold market update: Enduring demand strength”; World Gold Council, January 16, 2026.

Table of contents

• What is digital gold?
• What is a Gold ETF?
• Key differences between digital gold and gold ETFs
• Digital gold vs gold ETFs: Which one performs better?
• Pros and cons of digital gold vs gold ETFs
• Tax implications of digital gold vs gold ETFs
• Which should you choose?

What is digital gold?/h2>

Digital gold generally refers to the purchase of gold through an online platform. The platform or its partner entity generally states that equivalent physical gold is stored in a vault and reflects the investor’s holding in grams within the application. Such platforms typically allow small ticket sizes, fractional ownership, and may facilitate sale back to the platform or request physical delivery, subject to their terms and conditions.

Costs may include more than the displayed gold price. Goods and services tax (currently 3%) may apply to the value of gold at the time of purchase. Platforms may also incorporate buy–sell spreads, storage charges, or other fees within quoted prices.

A key distinction relates to oversight. SEBI has clarified that digital gold products offered by online platforms are not regulated as securities under its framework. Therefore, the investor protections available under SEBI-regulated mutual fund structures do not apply. Investors may review contractual terms, custody arrangements, and pricing transparency carefully before transacting.

What is a Gold ETF?

A Gold ETF is a mutual fund scheme that seeks to mirror domestic gold prices, subject to tracking error and expenses. Units of Gold ETFs are listed and traded on stock exchanges, and transactions are carried out through a demat and trading account.

Gold ETFs operate within SEBI’s mutual fund regulatory framework. This includes requirements around scheme information documents, portfolio disclosures, expense ratios and independent custodial arrangements. However, market risk arising from fluctuations in gold prices continues to apply.

Key differences between digital gold and gold ETFs

The differences between digital gold and Gold ETFs are evident in operational structure and regulatory treatment:

• Oversight: SEBI has clarified that digital gold is outside its regulatory purview. Gold ETFs are regulated mutual fund schemes under SEBI’s mutual fund regulations.
• Price formation: Digital gold prices are quoted by the platform, including applicable spreads. Gold ETFs are traded on stock exchanges, where execution depends on prevailing market prices, liquidity and bid-ask spreads.
• Access: Digital gold holdings are maintained within the platform’s ecosystem. Gold ETFs require a demat and trading account for direct purchase and sale on exchanges.
• Cost visibility: Digital gold pricing may embed spreads and other charges within quoted prices. Gold ETFs disclose total expense ratio (TER), and investors may incur brokerage and demat charges separately.
• Physical conversion: Some digital gold platforms may offer physical delivery, subject to minimum quantity and additional charges. Gold ETF redemption in physical form, where permitted, is generally linked to large creation units and may not be practical for retail investors.
• SIP-style investing: Investors who prefer to invest through SIP without a demat account may consider a gold ETF fund of funds. Such schemes invest in underlying Gold ETFs and may involve layered expenses.

Digital gold vs gold ETFs: Which one performs better?

Both options are linked to domestic gold prices. Differences in realised outcomes generally arise from structural features and associated costs rather than gold price movement alone.

In digital gold, buy–sell spreads, GST at purchase, storage arrangements and platform charges may influence the net outcome compared to prevailing market prices.

In Gold ETFs, expense ratios, brokerage, bid-ask spreads and tracking error may result in deviations from the underlying benchmark over time.

Investors reviewing allocation patterns may use a mutual fund calculator to estimate contribution levels toward a target value. However, such projections are based on assumptions and do not indicate assured or certain results, as gold prices are market-linked.

Pros and cons of digital gold vs gold ETFs

Digital gold pros

• Low entry amounts enable micro-investment.
• Operational convenience through online platforms.
• Possibility of physical delivery, subject to platform policies.

Digital gold cons

• Outside SEBI’s securities regulatory framework.
• GST and buy–sell spreads may influence overall cost.
• Redemption terms, pricing mechanisms and storage arrangements vary across platforms.

Gold ETF pros

• Regulated under SEBI’s mutual fund framework with prescribed disclosure and custody norms.
• Transparent expense ratio disclosure.
• Exchange-traded pricing subject to market liquidity.

Gold ETF cons

• Requires a demat and trading account for direct investment.
• Trading is restricted to market hours.
• Physical redemption is generally linked to large lot sizes and may not be accessible to retail investors.

Tax implications of digital gold vs gold ETFs

Tax rules influence post-tax outcomes and require careful review.

Digital gold taxation

Digital gold is taxed in a manner similar to physical gold, except GST won’t be applied at making charges because of its digital form.

• If held for up to 24 months, gains are treated as short-term capital gains and taxed at the investor’s applicable income tax slab rate.
• If held for more than 24 months, gains are treated as long-term capital gains and taxed at 12.5% without indexation under current rules.
• GST applies at the time of purchase, but is not part of the capital gains tax computation.

Gold ETF taxation

For tax purposes, gold and silver ETFs are treated as listed securities.

• If held for up to 12 months, gains are treated as short-term capital gains and taxed at the investor’s applicable income tax slab rate.
• If held for more than 12 months, gains are treated as long-term capital gains and taxed at 12.5% without indexation under current rules.

Note: The rates above are base rates and exclude applicable surcharge and cess.

Which should you choose?

The choice between digital gold and Gold ETFs depends on operational preferences, cost transparency, holding period and regulatory comfort.

• Digital gold may be suitable for investors prioritising small-ticket purchases and potential physical delivery, after reviewing platform structure, pricing and custody arrangements carefully.
• A Gold ETF may be suitable for investors preferring exchange-based transactions and a SEBI-regulated mutual fund structure. Here too, the minimum investment amount is limited to the per-unit price, making it relatively affordable, subject to prevailing gold rates.

Investors already investing in mutual fund products and seeking automated contributions without a demat account may explore gold ETF fund of funds. A mutual fund calculator may help estimate contribution patterns toward a target value, recognising that gold prices are subject to market volatility.

The calculator is an aid, not a prediction tool. It may provide only an indicative picture.

Conclusion

Digital gold and Gold ETFs both provide avenues to gain exposure to gold without directly handling physical metal. Digital gold offers operational convenience and fractional access, but operates outside SEBI’s securities regulatory framework and involves platform-specific pricing structures. Gold ETFs function within India’s regulated mutual fund ecosystem and follow prescribed disclosure and custody norms, while remaining subject to gold price volatility and market risk. Understanding structural, regulatory and tax differences may help investors align gold exposure with broader portfolio objectives, diversification needs and risk appetite.

FAQs

Is digital gold regulated in India?

SEBI has clarified that digital gold or e-gold products offered by online platforms are outside its regulatory purview under securities laws.

Are gold ETFs safer than digital gold?

Gold ETFs operate within SEBI’s mutual fund framework, while digital gold does not. However, both are subject to gold price volatility. Regulatory oversight does not eliminate market risk.

Do gold ETFs have GST?

Purchase and sale of Gold ETF units on stock exchanges do not attract GST on the transaction value. Brokerage, demat and other applicable charges may apply.

Can I convert a gold ETF into physical gold?

Gold ETFs generally do not provide physical delivery for retail investors. Units are typically bought and sold on exchanges, and redemption in physical form, where permitted, is linked to large creation units.

Do I need a demat account for gold ETFs?

Direct purchase and sale of Gold ETFs on stock exchanges require a demat and trading account. Alternatively, investors may consider Gold ETF Fund of Funds without a demat account.

How are gold ETFs taxed?

Gains on Gold ETF units held for less than 12 months are taxed at the investor’s slab rate as short-term capital gains, while gains on units held longer than 12 months are taxed at a flat 12.5% as long-term capital gains. Additionally, investors will need to pay 4% cess and surcharge, if any.

How is digital gold taxed?

Digital gold is taxed in a manner similar to physical gold. Gains are classified as long-term after 24 months and taxed at 12.5% without indexation under current rules, while shorter holding periods are taxed at the investor’s slab rate. Additionally, investors may need to pay applicable cess and surcharge.