Gold ETF Vs. Gold Mutual Fund: Which is Better?

Gold has been the go-to investment option for Indians for ages. The introduction of new and advanced developments in the world of finance has also changed the way people invest in gold. Gold exchange traded funds (ETFs) and gold mutual funds are two of the most popular investments for people looking for exposure to gold. Gold ETFs monitor the price of physical gold and offer a direct investment in gold. These securities are passively managed and traded on the stock exchanges. At the same time, gold mutual funds are actively managed funds that invest in gold-related securities like gold mining stocks, gold derivates and gold ETF. In this blog, we dive deeper into the difference between gold ETF and gold mutual funds to help you make the right investment decision. 


Gold ETF Vs. Gold Mutual Fund: Meaning 


What is Gold ETF? 


Gold exchange traded funds are passively managed investment instruments that track the performance of the gold index. These ETFs are traded on the stock exchanges, and they invest in gold directly by buying future contracts or bullions. They track the performance of gold, so the performance of ETFs is similar to that of gold. To invest in gold ETFs, an investor needs to open demat account online India. 


What are Gold Mutual Funds? 


Gold mutual funds are open-ended funds that invest primarily in gold exchange-traded funds. They are invested in 99.5% pure gold or gold-related assets. The main goal of gold mutual funds is to replicate the performance of physical gold, providing investors exposure to gold prices without the complications of owning physical gold. 




Gold ETF Vs. Gold Mutual Fund: Difference Between Gold ETF and Gold Mutual Funds


It is crucial to understand the difference between gold ETFs and gold mutual funds to choose the right investment option in the long run. 


  • Method of Investment 

Investment in gold mutual funds is made through a SIP (Systematic Investment Plan) of a minimum of Rs.500 as units of the gold funds on the existing NAV. Gold ETFs need a minimum purchase of 1 unit, which equals one gram of gold, implying that the minimum investment in gold ETF is higher than gold mutual funds. 

  • Holding 

You can buy or sell gold ETFs through a stock market broker in India or through a demat account, so these ETFs are debited and credited to the demat account. However, there is no obligation when investing in gold mutual funds. 


  • Liquidity 

Every gold ETF is traded on a specific stock exchange, so a pool of buyers is available when you sell the units. However, the Indian gold ETF market is considerably small, making gold ETF less liquid. In contrast, gold mutual funds are more liquid as they can be purchased and sold conveniently. 


  • Transaction Expense 

Gold ETF's yearly cost is somewhere between 0.5% to 1% by expense ratio, brokerage and other charges. Gold mutual fund closure costs yearly are between 0.6% and 1.2%, which includes ETF management fees and other trading brokerage charges in India. 


  • Investment Through SIP 

An investor can invest in gold mutual funds through SIP; while it's impossible to invest in gold ETFs through SIP, ETF units must be purchased through a lump sum payment. 


Investment in gold is a great way to diversify your investment portfolio. Both gold ETFs and gold mutual funds are an excellent alternative to physical gold. So whether you want to invest in gold ETF or gold mutual funds, consider your needs for liquidity, convenience and investment flexibility. Ready to invest in different mutual fund categories? Aaditya Wealthon is your trusted partner for making the right investment decisions. To invest in mutual funds, call us. 

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