What are the differences between gold ETFs and gold funds
The Gold Exchange Traded Fund (ETF) and gold funds are 2 different types of virtual gold investments. Investors who wish to invest in gold purely for monetary profitability purposes and do not want any gold ornamentation, are more inclined to these types of gold purchases. Both investments are safe gold investment options, depend on current gold rates, and you don’t have to worry about the costs of storing the metal. The gold will be safe with the company offering you the funds or ETFs, and these are approved by the SEBI and the RBI. In both cases, the investment product is the same, only the investment modes are different. Gold ETFs and gold funds are taxed in the same way. If you sell the unit before 3 years, you will be charged a short-term capital gain and after 3 years you will be charged a long-term capital gain.
However, many investors don’t know where to invest – in ETFs or gold funds? What will be the best option? Both investment options have their pros and cons, you should first understand your needs before making a decision. Here we will discuss the differences and characteristics of gold ETFs and gold funds.
Gold ETF is a type of mutual fund that trades through a Demat account like other company stocks. In the Gold ETF, your money will be invested in 99.5% pure gold, or shares of gold jewelers, shares of gold mining companies, etc. So, each rupee will be tied to any kind of gold related investment portfolio. Your money is invested through an asset management company (AMC), so you will have to pay a certain amount of management fees. This amount you pay to the AMC for managing your fund in any way.
Gold funds are also similar to mutual funds, but you don’t need to have a Demat account, instead you can purchase it from your regular mutual fund mobile app. When you invest in a gold fund, your money will ultimately be indirectly invested in a gold ETF. However, investing in a gold fund can be a regular or systematic habit of investing in gold, with a very small amount of money. Just like other SIPs, you can start your investment in a gold fund even with Rs. 500. In a gold fund, you will have to pay the expense ratio to the AMC.
So what are the main differences?
|Gold ETF||Gold Fund|
|Demat account required||Demat account not required, invest by mutual fund application|
|The expense rate is around 1%||Spending rate may be higher, around 1.5%|
|You cannot use it as SIP||You can use it as a SIP|
|Liquidity is moderate||Liquidity is higher|
|The fixed minimum investment will depend on the net asset value, it will vary depending on the company||You can invest as you wish|
|Leave without load||You may need to pay up to 2% exit fee if you sell before 1 year|
However, even if the minimum investment is higher in gold ETFs than in gold funds, but in the former you can only invest one unit of ETF. But in the long run investing in gold funds will be much bigger with systematic and regular / monthly investments because you can use it as a SIP. So choose either gold ETFs or gold funds according to your needs. Simply write down the expense ratio of your investment and the company’s assets under management if you are investing in ETFs.
Gold ETFs can be a once-in-a-lifetime experience, but in gold funds investors generally stay committed to the ecosystem. Gold is a recommended asset for diversifying your portfolio. So choose wisely any option to build an enriched investment portfolio. Besides these 2 options, you can also invest in Digital Gold or Gold Sovereign Bonds (SGB) offered by the RBI.
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