Gold BeES vs Gold ETF: Which is a Better Investment Option?

Gone are the days when buying physical gold was the only option for investing in gold. However, today, you do not have to keep this precise asset in your locker due to the advent of gold ETFs and gold BeES. These are two paperless ways to invest in gold.

Many novice investors are confused about which of these two investment options is better for them. Let us understand the key differences between gold BeES vs gold ETFs and evaluate which is better.

Understanding Gold BeES

Gold BeES is an Exchange-Traded fund (ETF) that invests mostly in real gold, which is 99.5% pure, to monitor the local gold price. They give investors a safe and computerised method to be exposed to changes in the price of gold.

There is no maturity or lock-in period associated with Gold BeES. This makes it an open-ended scheme while being listed and traded on stock markets.

Each unit usually weighs 0.01 grammes of gold, and its value fluctuates in tandem with changes in the price of gold. A simple and inexpensive method of investing in gold is offered by Gold BeES. Like Gold ETFs, Gold BeES returns are correlated with the price of gold.

Understanding Gold ETFs

Gold ETFs are exchange-traded funds, which are specifically designed for gold investments. They follow the price of real gold and are traded on stock markets. Since gold ETFs are stored electronically, this investment option is highly secure. ETFs for gold are liquid enough to buy or sell them on stock markets in a hassle-free manner.

Investors invest in these ETFs for wealth preservation, diversification, and hedging.

Gold ETF vs Gold BeES – Key Differences

Now that you have understood both gold ETFs and gold BeES, let us evaluate the differences between gold beES vs gold ETFs:

How Do Gold BeES Work?

Since you have a decent knowledge of gold beES vs gold ETFs, you must understand how both of these instruments work. Each unit of Gold BeES is about equivalent to 0.01 grammes of 99.5% pure real gold. By monitoring price changes and guaranteeing strong returns, the fund management makes investments in both real gold and other exchange-traded gold derivatives.

To maintain transparency, ETFs give their units to investors, which are thereafter traded on the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). For this, you need to open Demat account.

The BeES maintains a low tracking error by regularly monitoring the price of gold and guaranteeing consistent alignment with price changes. Since there is no real gold involved, you do not have to worry about keeping it safe.

Gold BeEs makes it possible for new investors to purchase gold with less money due to its low price.

How Does a Gold ETF Work?

You also need to know how Gold ETFs operate before you invest in them. This fund operates simply to provide investors with returns. During trading hours, you can exchange them on stock exchanges. Depending on your financial objectives, you may either purchase or sell Gold ETF shares.

The amount of physical gold that the ETF owns, either in the form of exchange-traded derivatives or in physical form, is represented by each unit. The cash amount equivalent to the unit’s real gold value is credited to your account when you sell it. Depending on specific circumstances, you would have to pay taxes on your earnings.

Risks of Investing in Gold ETF

Given the numerous distinctions between gold beES vs gold ETFs, the risks involved also vary. Here are some of the risk factors you must consider while investing in gold ETFs:

1. Gold ETFs are extremely vulnerable to changes in the price of gold and other macroeconomic factors.
2. ETFs with lower trading volumes may have a higher liquidity risk, which makes it more difficult to exit at advantageous prices.
3. ETFs with higher cost ratios or less effective fund management may exhibit more noticeable tracking errors.
4. Less reputable fund firms could be riskier since the AMC’s reputation is important.
5. Similar to Gold BeES, all gold ETFs are subject to tax and regulatory changes that may eventually impact their returns or appeal.

Risks of Investing in Gold BeES

The following are the risk factors you should consider while investing in gold beES:

1. The volatility of the gold price is a concern for Gold BeES. This implies that its worth may vary significantly depending on circumstances like global gold prices,  changes in currency, political or economic developments.
2. Due to the fund fees and operational inefficiencies, tracking error can grow under turbulent market circumstances. This can diverge the fund’s returns from real gold returns.
3. Despite being a liquid asset, there is a possibility that it will be adversely affected by severe market circumstances. It will be more difficult to acquire or sell at your desired price.
4. Since the effectiveness of the AMC determines the success of the ETF, fund management risk also exists. Modifications to tax laws or regulations may impact future tax returns.

Taxation in Gold BeES and Gold ETFs

Since there are a lot of differences between gold beES vs gold ETFs, both of them have the same tax treatment. Below is the analysis of some of the modifications to the holding term and tax treatment of gold ETFs and gold beES from the Union Budget 2024 announcement:

1. Short Term Capital Gains (STCG)

   Gains on investments held for 12 months or less are treated as short-term capital gains (STCG) and are taxed at your applicable income tax slab rate

2. Long-Term Capital Gains (LTCG)

   Gains on investments held for more than 12 months are long-term capital gains (LTCG) and are taxed at a flat rate of 12.5%, with no indexation benefit, effective from April 1, 2025.

Gold BeES vs Gold ETF – Which is Better?

Based on the above differences between gold beES vs gold ETFs, it depends on you which one you should choose. If you want more liquidity, you can invest in gold BeES. Its age, size, and popularity make it quite liquid.

While several Gold ETFs provide a lower fee ratio of 0.40% to 1.00%, gold BeES typically has a somewhat higher but stable expense ratio of about 0.80%. Before making a choice, you must compare the expense ratios of Gold ETFs and choose the option which suits you.

For long-term investors looking for an investment with minimal expenses, quick access to liquidity, and stability, Gold BeES can be a better option for them.

Contrarily, people who prefer a particular fund house, or want ETFs that work with their current mutual funds portfolio linked to a demat account, gold ETFs can benefit from them.

How to Invest in Gold BeES and Gold ETF Online?

Follow the steps below to invest in gold beES or gold ETF online:

1. Go to PL Capital – Prabhudas Lilladher’s website or application and open a Demat or trading account. You need to fill out your KYC by providing your bank, Aadhaar, and PAN information.
2. Your account will be opened upon successful verification, and you will get an email with your login information.
3. You need to look for the Gold ETFs or Gold BeES you want to buy.
4. Click the ‘Buy’ option after entering the quantity of units you wish to purchase.

Final Thought

Since you have gone through the key differences between gold beES vs gold ETFs, you can decide which one you should choose. In India, both are affordable options to purchase gold without worrying about purity or storage. Many of the top-performing gold ETFs have similar efficiency, although Gold BeES usually have more liquidity.

Download the PL Capital application to invest in gold ETFs while opening a Demat account for free. PL also provides you with a lot of services, including currency trading, derivative trading, and portfolio management services.

Frequently Asked Questions

1. Which is better between BeEs and an ETF?

Based on the difference between gold bees and gold ETF, the better option will rely on your chosen fund house, the frequency of your trading, and most importantly, your investment timeframe. Gold BeES may provide more liquidity benefits compared to ETFs.

2. One gram of gold is equal to how many Gold BeES?

Each unit of gold beES is equivalent to around 0.01 grammes of real gold. You can purchase and sell the Gold BeES ETF on stock markets.

3. Which gold bond is the best?

Your investment objectives will determine which gold bond is the best choice for you because other alternatives have different advantages in terms of risk, liquidity, and returns. Due to its dual yields and tax advantages, sovereign gold bonds (SGBs) can be a better option for the majority of long-term investors in India.

4. Can I sell gold ETFs whenever I want?

Yes, you may sell gold ETFs at any time, but only during regular business hours. Gold ETFs have great liquidity since they may be purchased and sold on an exchange, much like regular shares. You cannot sell them 24/7 or while the market is closed.

5. Is it better to invest in a gold bond or a gold ETF?

The preferable choice for a long-term, low-risk, and tax-efficient investment is an SGB. For investors with short- to medium-term goals who value high liquidity and flexibility, gold ETFs are a better option.

6. What is the 3:5-10 rule for ETF?

The 3-5-10 rule is a guide for choosing or evaluating ETFs. It helps to determine the eligibility of ETFs based on three important factors. These are 3% expense ratio limit, 5% tracking error limit, and a 10% portfolio turnover.

7. What makes goldbees less expensive than gold?

Due to the absence of extra expenses like manufacturing charges, GST, and storage fees that come with actual gold, goldbees are less expensive than real gold. Rather, investors only pay brokerage fees to purchase or sell units on the stock exchange, and Goldbees has a low annual expense ratio.