The word “Gold” carries many meanings. If seen as a metal, then it is highly used to make jewellery for ladies in India. They are used to make other types of jewellery too, but in smaller quantities. If talking of Gold in the sense of investment, then it is a commodity where you invest monthly in forms of SIPs or as a share.
In this blog, we will be reading about the difference between a Gold ETF and vs Gold Mutual Fund, their benefits, and which one is the best option to put your money in.
Difference between Gold ETF vs Gold Mutual Fund
| FEATURES | GOLD ETF | GOLD MUTUAL FUNDS |
| Structure | Gold ETFs are traded on a stock exchange like a share. | It is a mutual fund scheme that is invested in Gold ETFs. |
| Investment Mode | To invest in a Gold ETF, you are required to have an investment account, which is a Demat and Trading Account. You can buy or sell via a broker, too. | For investing in a mutual fund, you do not need to have a DEMAT account. You can invest via AMC / Platform or through a Distributor. |
| SIP | There is a possibility to invest via broker platforms, but it can also potentially be less seamless/ costlier (brokerage per transaction). | They have easy, standard SIP facilities available. |
| Liquidity | The liquidity in the Gold ETF is provided on an intraday basis on the exchange at real-time prices. | The end-of-the-day liquidity is based on NAV in the GOLD Mutual funds. |
| Cost (Expense Ratio) | The cost is generally lower, which means a direct expense ratio. | The cost involved in Gold Mutual Funds is the higher effective cost (FOF expense + underlying ETF expense). |
| Pricing | The trades near the real-time gold price (plus market demand/ supply dynamics). | The prices are fixed at the end-of-day NAV of the FOF. |
| Minimum Investment | 1 unit (the price varies, which is often between INR 100- INR 1000). | As per the scheme (which is often low; for e.g. INR 100, 500, 1000 via SIP). |
Factors to Consider When Choosing Between a Gold ETF and Gold Mutual Funds
While you are still deciding between a Gold ETF and Gold Funds, what to choose and why still depends on the individual circumstances and preferences. So here is a list of factors that you should take into consideration while still choosing between a Gold ETF and a Gold Mutual Fund:
- Demat Account: The question asked before doing any investment is whether you have a demat account or not. If the answer is YES, then it is easier for you to invest in a Gold ETF. However, if you do not have a demat account, then investing in a Mutual Fund is easier.
- Investment Method (SIP vs. Lump Sum): If you strongly prefer to invest through a SIP with ease and minimal transaction costs per instalment, then Gold Mutual Funds are typically more convenient. If you plan to invest a huge investment (lump sum amount) or you feel comfortable with a broker-facilitated SIPs for ETFs, then ETFs are viable.
- Cost Sensitivity: If you are thinking of minimising investment costs as a priority, then directly investing in a Gold ETF is usually a result that lowers the overall expense ratio compared to the Gold FoF, which has layered expenses.
- Trading Needs: If you want to have the ability to buy or sell at real-time prices during market hours, then Gold ETFs offer this flexibility. If end-of-day NAV-based transactions are acceptable, Gold Mutual Funds suffice.
- Investment Amount: While the minimum investment per unit is low for both now (1 unit for ETF, low SIP amounts for MFs), consider brokerage charges for very small, frequent ETF purchases, which might make the MF (Mutual Funds) SIPs more cost-effective for tiny regular investments.
Conclusion
Both the Gold ETFs and Gold Mutual Funds are offering very convenient ways for the Indian investors to add on to the gold exposure to their portfolio without having in hassles of physical ownership. So if you are investing in Gold ETFs then you have to provide a potentially lesser cost and a real-time trading via the DEMAT account; while if thinking of an investment in the Gold Mutual Funds, then offering the ease of investment, especially via SIPs, without needing a Demat Account makes them a lot more suitable for the beginners or those preferring the mutual fund route.
