During the festive and wedding seasons, many Indians buy gold jewellery and coins. Some people have moved to a more modern approach to gold investing. Gold, on the other hand, remains an essential component of any investment portfolio, whether it is a hedge fund or a retail portfolio. When the overall risk-taking appetite in equity diminishes, international gold prices appear to shoot higher and clock solid returns. The gold asset class is closely linked to other asset classes such as bonds and shares, and it is unaffected by volatile economic conditions such as inflation. Investment in gold, as a safe investment choice, enables investors to rebalance their portfolio by investing in a wider range of mutual funds and ETF.
Investment in Gold ETF
A gold ETF is a form of exchange-traded fund that can be used to replace physical gold. Physical gold investment is inconvenient and risky, as any investor knows. Gold ETFs are passive investment vehicles that invest in gold bullion and are dependent on gold prices. The reserves of an ETF are completely transparent due to its clear gold pricing. Furthermore, relative to physical gold investments, ETFs have much lower expenses due to their special structure and creation process. Gold ETFs invest in 99.5 percent purity gold bullion, which is equivalent to holding the gold.
Gold ETFs are ideal for those who choose to use gold as an investment option rather than for personal use. Gold ETFs can be used as a buffer against any form of uncertainty. It aids in asset diversification and ensures that your portfolio is well-balanced; as gold prices fall or rise, you can adjust your asset allocation plan to ensure that risk is minimized and gains are sustained.
Investment in Gold Mutual Funds
Gold Mutual Funds are gold funds that invest in gold exchange-traded funds (ETFs). Gold funds invest in gold bullion and depend on instruments that are directly linked to gold prices.
Gold mutual funds, like any other mutual fund, earn returns based on the performance of their underlying investment. The NAV of gold funds changes in this situation as the price of the gold ETFs in which they have invested changes.
You will be investing in gold at the current rate if you purchase a gold fund. You will be selling gold at the current rate when you redeem. You've made money on gold if the price of gold at the time of redemption is higher than the price at the time of investment.
Difference Between Gold Mutual Funds VS Gold ETF
Gold Mutual Funds require a minimum investment of INR 1,000 (as a monthly SIP), while Gold ETFs usually require a minimum investment of 1 gram gold, which is close to INR 2,785 at current rates.
SIP-based gold funds are available, while gold ETFs are not. Without a Demat account, Gold mutual funds may be purchased from mutual funds; however, Gold ETFs are traded on the exchanges and need a Demat account.
The management costs of Gold ETFs are lower than the Gold Mutual Funds. Gold MFs investing in Gold ETFs also have Gold ETF costs.
Whenever required, one can convert ETF to metal while gold MF stays on a Demat account, like any other equity.
In contrast to gold funds, ETFs have no exit loads, which ensures that investment companies can buy or sell the units during the market hours at any time. The sale to the fund house on the NAV of Units of Gold Funds can be redeemed by day.
If you invest in gold by mutual funds or exchange-traded funds, the long-term capital gains tax rate would be 20% plus a 4% cess. Short-term investors (those with a holding period of fewer than 36 months) would not be subject to direct taxation on their profits. Instead, those earnings are applied to their other earnings, and taxes are levied according to the relevant slabs.
Gold Mutual Funds VS Gold ETF
|Investment Amount||Minimum investment Rs 1,000||Minimum investment is 1 gram of gold.|
|Account||Demat account is not required||Demat account is required|
|Investment||Invests in pure gold of 99.5% purity||Invests in gold ETFs|
|SIP||SIP route of investment||No SIP route|
|Liquidity||Compared to gold ETFs, they are less liquid.||Offer higher liquidity|
|Conversion||No facility to convert into physical gold||Gold ETFs can be converted to physical gold|
|Charges||If units are redeemed before one year, gold mutual funds charge an exit load.||Gold ETFs charge no exit loads|
Gold ETF and Gold funds have their pros and cons but track the gold prices. One can check the performance of the ETF and gold mutual funds before deciding to opt. Also, make sure to check the expenses and tax implications when you sell your fold investments. Investing in Gold ETFs rather than keeping gold in physical form or investing in a gold fund is a better long-term strategy for accumulating gold.