Gold ETFs vs Gold Mutual Funds are both popular investment options for those looking to purchase gold. While they are both related to gold, they do differ in many ways, including function, purpose, and exposure to gold assets. But which is better to invest in?
Before deciding which investment option aligns with your financial goals, it is important to understand exactly what Gold ETFs and Gold Mutual Funds are, and the differences between them. In this article, we take a deep dive into what these two investment options are, their differences, unique benefits, and more.
Gold ETF (Gold Exchange Traded Funds) is a type of fund that tracks the real-time movement of gold prices by holding physical gold bullions. You can trade units of Gold ETFs in the stock market as you would trade a regular stock. When you invest in a Gold ETF unit, you are purchasing a tiny unit of the physical gold bullion without actually buying any physical gold. As the ETF closely tracks the gold market, prices move in accordance with the rise and fall of gold prices.
Gold Mutual Funds are open-ended mutual funds that invest in various forms of gold. These mutual funds may invest in:
1. Physical units of gold
2. Units of Gold ETFs
3. And shares of companies mining and refining gold
Gold mutual funds lower the risks associated with direct gold investing and offer more diversification. Like regular mutual funds, gold mutual funds are managed by professional fund managers, allowing investors to take a more hands-off approach.
Some of the leading differences between gold mutual funds and gold EFTs include the following:
| Criteria | Gold Mutual Funds | Gold ETFs |
| Meaning | Gold mutual funds are funds that invest in gold and gold-related assets. These include gold EFTs, mining companies, and more. | Gold ETFs refer to any instruments that keep track of the performance of gold. They invest in gold through purchasing gold bullion or contracts. |
| Demat Account | Investors do not need a demat account to invest in gold mutual funds. | Investors need to have demat accounts to invest in Gold ETFs. |
| SIP | It is possible to invest in gold mutual funds through a SIP (Systematic Investment Plan). | ETF units have to be purchased through lump sum payments. Because of this reason, it is not possible to invest in them through SIPs. |
| Costs | Gold mutual funds are subject to entry and exit loads and are managed by fund managers. Because of this, they can be more costly. | Gold ETFs do not have entry and exit loads. They have low expense ratios, and therefore are more cost effective. |
| Liquidity | Gold mutual funds do not offer the same liquidity as ETFs. | Gold ETFs have higher liquidity as they are traded like stocks and in high volumes, making them easier to buy and sell. |
Gold ETFs are an ideal choice for investors seeking a more active approach to investment. You need considerable investment experience to successfully trade gold ETFs as you would have to analyse and research your options before investing. On the other hand, gold mutual funds are more beginner-friendly, allowing you to opt for a more hands-free investment approach along and enjoy diversification benefits.
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ETFs usually come with lower expense ratios, offer higher liquidity, and trade like stocks. If you prefer cost efficiency and control over buying and selling during market hours, ETFs might suit you better than mutual funds.
Gold ETFs offer a simple way to invest in gold without dealing with physical storage. They closely track gold prices and are ideal if you want a liquid, low-cost option that mirrors real-time market value.
Gold ETFs can be affected by gold price volatility and market fluctuations. There's also the chance of tracking errors and brokerage fees.
Both are relatively safe, depending on your investment style. ETFs are transparent and cost-effective, while mutual funds offer professional management. If you prefer market-linked flexibility, ETFs may appeal more.
Gold ETFs usually offer better liquidity and lower costs. Gold mutual funds, though, are easier for beginners as they don't need a demat account. The better option depends on your investing preferences and comfort with trading.
The drawback of Gold ETFs is that you won't own physical gold, and you'll need a demat account to invest. Gold ETFs can also have slight tracking errors, and your returns may vary based on changing market conditions.
No, gains from gold ETFs are taxable. If held for more than three years, they attract LTCG tax at 20% with indexation benefits. Shorter holdings are taxed as per your income slab.
There's no single most favourable gold ETF. Look at factors like expense ratio, tracking accuracy, and liquidity to find one that matches your investment needs.
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27 May 2025
5 mins read
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