Gold Funds Vs Gold ETFs: An Overview
Indians have always had a deep love for gold. Gold's emotional worth has only risen in recent decades, and wise investors know it's a terrific hedge against inflation and stocks. Investing in gold to diversify assets is not new. So, investors have been clamouring for the best ways to invest in gold. ETFs and mutual funds are both popular options. The investment strategies used in both modes can be made more accessible by learning more about the topic of gold mutual funds vs gold ETFs.
What are Gold ETFs?
Gold exchange-traded funds are financial products that aim to invest in gold with a purity of 99.5% and are passively managed. Each unit of a gold ETF is equal to 1 g of gold. Exchange-traded funds (ETFs) are a type of investment like mutual funds and stocks. ETFs are run like mutual funds but can be bought and sold on the stock market. In this situation, they are made to behave like a gold index. To buy gold ETFs, you need a Demat account.
Features of Gold ETFs
- Gold ETFs are maintained electronically, so you do not need to make any warehousing arrangements.
- Gold ETFs are listed on stock exchanges and can be traded in real-time.
- Gold ETFs offer a high level of liquidity, allowing investors easy access to their cash and withdrawals from their investments.
- Gold ETF expenses are less than the costs associated with procuring, storing, selling, and insuring gold in its physical form.
Who Should Invest in Gold ETFs?
Gold ETFs are useful for diversifying an investor's portfolio. They fit investors who desire gold exposure and market participation. Low-risk investments, Gold ETFs, are secured by 99.5% pure gold. They're good for low-risk investors.
Dematerialized gold ETFs decrease storage risk and expenses. These funds are less taxed than gold. Gold ETFs are a good option for investors who wish to make a return or convert their holdings into actual gold. Gold ETFs monitor real-time pricing. Gold ETFs may let investors watch their gold assets in real time.
Best Gold ETF in India
| Gold ETFs | Last 1-Year Returns |
| SBI Gold ETF | 5.41% |
| HDFC Gold ETF | 4.11% |
| ICICI Prudential Gold ETF | 4.28% |
| UTI Gold ETF | 9.77% |
| Axis Gold ETF | 4.44% |
(Data as of 25th October 2022) Source: Moneycontrol.com
Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns
What are Gold Funds?
A few brokerages enable clients to buy gold ETF units regularly. In these agreements, investors must specify how many units may be bought. This frustrates many investors. Buying gold ETFs requires Demat accounts.
Fund firms began offering gold mutual funds to solve this issue. Gold mutual funds buy ETFs. Gold mutual funds follow gold ETF units, representing actual gold value. These mutual funds profit on the underlying asset's performance. Gold ETF NAV affects gold mutual fund results.
What are the features of gold funds?
- Mutual gold funds are available for purchase without a Demat account.
- Gold mutual funds provide simple access to gold.
- Gold funds are a good hedge against inflation and political instability.
- A simple way to diversify your investments.
Who Should Invest in Gold Funds?
Gold funds are for investors who want to protect against inflation or safeguard their cash. Investors who can't buy actual gold may buy gold funds. Small investors may invest diligently via SIP and not worry about market timing. Gold mutual fund investments don't need a Demat account. They're more expensive than gold ETFs since the portfolio includes ETF fees.
Best Performing Gold Funds in India
| Fund | 1-year Return |
| Aditya Birla Sun Life Gold Fund | 3.8% |
| Invesco India Gold Fund Growth | 3.75% |
| Axis Gold Fund Growth | 4.23% |
| HDFC Gold Fund Growth | 3.48% |
| SBI Gold Fund Growth | 4.25% |
(Data as of 25th October 2022) Source: Moneycontrol.com
Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns
Gold Funds vs Gold ETF: What's the Difference?
When comparing gold mutual funds vs gold ETFs, the following differences comegram
| Parameters | Gold ETF | Gold Mutual Fund |
| Meaning | Gold ETFs put their money into 99.5% pure gold that comes from banks and is certified by the RBI. | Gold Mutual Funds invest in gold ETFs. |
| Investment Amount | At the current pricing, one gram of gold is the required minimum investment. | The minimum investment is Rs.1000 (as monthly SIP). |
| Mode of Investment | Gold ETF only supports lump sum investments. | Both SIP and lump sum investment options are available. |
| Demat Account | To purchase or invest in Gold ETF, an investor needs a Demat account. | Gold mutual funds don’t require a Demat account. |
| Liquidity | Due to their listing on the stock exchange, investors have access to high liquidity thanks to their ability to trade freely during market hours. | Although they aren't traded on the open market, investors may buy and sell shares based on the day's NAV. |
| Exit Load | No exit load in Gold ETF. | There are exit load charges when gold mutual funds are sold before a year. |
| Management Cost | Gold ETFs have lower management costs than other funds because they are passively run. | Management fees are higher for gold mutual funds since the fund invests in gold exchange-traded funds, which means that investors are paid fees by both the mutual fund and the ETF. |
| Conversion | Gold ETFs allow owners to redeem their holdings in bullion anytime. | Gold MF does not have such an option. |
Gold ETF vs Gold Mutual Fund – Which is Better to Invest?
Gold mutual fund vs Gold ETF is a hot topic. Both are secure investments where investors need not worry about gold theft or safekeeping. These funds diversify investor portfolios. Trading in both funds is simple. The investor's financial goal and investment amount determine which to choose.
Gold mutual funds don't require Demat accounts since they invest in AMCs' gold ETFs. It permits SIP investments, whereas gold ETF doesn't. Gold funds have an exit load if redeemed within a year, whereas gold ETFs don't.
Buying and selling gold ETFs requires a Demat account. The fund contains actual gold comparable to its value as the underlying asset. Also, stocks provide investors with significant liquidity. Investors may convert the ETF for gold.
A gold fund is useful if investors want a recurring investment rather than a big amount. Investing a big sum in gold ETF might be cost-effective. Gold exchange-traded funds (ETFs) may be a better long-term strategy for gold accumulation than buying physical gold or investing in gold funds.
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Conclusion
The bottom line is that both gold funds and ETFs are good investments, but it may come down to personal preference in which one you choose. Gold funds are a good option for those who want to invest consistently over time.
Conversely, gold ETFs are better if you want to hold your gold in a Demat account and could one day need to convert it into physical gold. You get to decide!
This is not an investment advisory. The blog is for information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, goal, time frame, risk and reward balance, and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs. The performance and returns of any investment portfolio can neither be predicted nor guaranteed.
Is Gold ETF a good investment?
As long as you want to invest for a long period, you may join the market anytime. Investment rewards are best when made early.
Do mutual funds beat ETFs?
ETFs are convenient and give high returns due to reduced costs and real-time trading. Mutual funds provide superior returns, but their expense ratio and other expenses might be expensive.
What are the benefits of investing in Gold ETFs?
Gold ETFs are not subject to a wealth tax and may be stored in a Demat account. You may keep your ETFs as long as feasible.