Anybody can invest in gold or other precious metal as an asset either by purchasing physical gold or electronically investing in it (e.g., Gold Funds or Gold ETFs). Gold Mutual Funds and Gold ETFs are considered to be a better option among all the Gold Investment options available in India as it simplifies the gold buying process, providing better liquidity and safer gold accumulation. But between these two investments, investors always get confused. Therefore, we will read in this article— Gold Mutual Funds Vs. Gold ETFs — to make a better investment choice.
Gold ETFs – The Gold ETF (Exchange-Traded Fund) is an open-ended fund which trades on the stock exchange. It’s an instrument based on a gold price based on gold bullion investment. Gold ETFs invest 99.5% pure gold (banks authorized by RBI). They are managed by fund executives tracking daily gold prices and trading physical gold to optimize yields. Gold ETFs provide both buyers and sellers with elevated liquidity.
Gold Mutual Funds – Gold Mutual Funds is a kind of Gold ETFs. These are plans that invest primarily in gold ETFs and other associated assets. Gold Mutual Funds do not invest directly in physical gold but indirectly take the same stance by investing in Gold ETFs.
Gold Mutual Funds vs. Gold ETFs
The Gold ETFs and Gold Mutual Funds are joint investments managed by Mutual Fund Houses, both of which are designed to help investors invest in gold electronically. Knowing them carefully however creates particular distinctions which enable investors to decide better.
You do not need a Demat account to invest in Gold Mutual Fundss. These funds invest in a Gold ETF that is floated by the same AMC (Asset Management Company). Investors can invest through the SIP route in gold mutual funds, which is not feasible when investing in the ETF. The convenience flipside is the exit load you have to pay, which is substantially higher than Gold ETFs.
You need a Demat account and a broker to buy and sell them through in Gold ETFs. Gold ETFs hold equivalent value physical gold as the underlying asset. But, on the other hand, Gold Mutual Funds units are issued as the underlying asset with Gold ETFs. Gold ETF units are traded on exchanges, thus offering both buyers and sellers better liquidity and the right price. However, this liquidity varies across fund houses, making liquidity a significant factor in investing in a Gold ETF.
Investment Amount- A minimum investment fund in Gold Mutual Funds is INR 1,000 (as a monthly SIP), whereas Gold ETFs typically require at present prices 1 gram gold as a minimum investment close to INR 2,785.
Cost of the transaction- Gold Mutual Funds may have up to 1 year of exit loads. Whereas, there are no exit loads for Gold ETFs.
Expenses – Gold ETFs are spent less on management than Gold Mutual Funds. Gold MFs invest in Gold ETFs and spend their costs on Gold ETFs, including Gold ETF expenses.