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What Are The Differences Between Gold ETFs And Gold Funds


Gold Exchange Traded Fund (ETF) and gold funds are 2 different types of virtual gold investments. Investors who want to invest in gold only for monetary profitability and do not want any gold ornament, are more inclined to these types of gold purchases. Both of the investments are safe gold investments options, depend on current gold rates and you do not need to worry about the metal's storage costs. The gold will be safe with the company that is offering you the funds or ETFs, and these are approved by the SEBI and RBI. In both cases, the investment product is the same, just the ways of investments are different. Gold ETFs and gold funds are taxed in similar ways. If you sell the unit before 3 years, you will be charged with short-term capital gain and after 3 years, you will be charged with a long-term capital gain.

What Are The Differences Between Gold ETFs And Gold Funds

However, many investors stay uncertain where to invest - in gold ETFs or gold funds? What will be a better option? Both of the investment options have their goods and bad, you need to understand your requirements first, before taking any decision. Here we will discuss the differences and features of gold ETFs and gold funds.

Gold ETF

Gold ETF is one kind of mutual fund which is traded through a Demat account, like other company stocks. In gold ETF your money will be invested in 99.5% pure gold, or gold jeweller's stocks, gold mining company's stocks, etc. So, every rupee will be related to any kind of gold-related investment portfolio. Your money is invested through an asset management company (AMC), hence you will have to pay a certain amount of expense ratio. This amount you pay to the AMC for managing your fund in all ways.

Gold Fund

Gold funds are also similar to mutual funds but you do not require to have a Demat account, rather you can buy it from your regular mutual fund mobile app. When you invest in a gold fund, eventually your money will be invested in a gold ETF indirectly. However, investing in a gold fund can be a method of a regular or systematic habit of investing in gold, with a very small amount of money. Just like other SIPs, you can start your gold fund investment even with Rs. 500. In a gold fund, you will have to pay the expense ratio to the AMC.


So what are the major differences?

Gold ETFsGold fund
Demat account mandatoryDemat account not required, invest by mutual fund app
Expense ratio is around 1%Expense ratio can be higher, around 1.5%
You cannot utilize it as an SIPYou can utilize it as an SIP
Liquidity is moderateLiquidity is higher
The fixed minimum investment will depend on the NAV, it will vary upon the companyYou can invest as you wish
Exit load freeYou might have to pay upto 2% exit load if you sell before 1 year

However, even if the minimum investment is higher in gold ETFs than the gold funds, but in the first one, you can invest only 1 unit of ETF. But in long term, investing in gold funds will be quite larger with systematic and regular/monthly investments, as you can use it as an SIP. Hence choose either gold ETFs or gold funds according to your requirements. Just note the expense ratio of your investment and the company AUM if you are investing in ETF.

Gold ETFs can be a one-time experience, but in gold funds, investors generally stay put with the ecosystem. Gold is a recommended asset to diversify your portfolio. So, choose any option wisely to make an enriched investment portfolio. Other than these 2 options, you can also invest in digital gold or Sovereign gold bonds (SGB) offered by the RBI.

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