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Difference Between Gold Fund vs Gold ETF
Gold Funds and Gold ETFs are two basic options through which investors seek exposure to gold. Gold Funds aggregate money from investors to buy Gold ETFs, which are traded on stock exchanges and track the price movements of gold. Conversely, Gold ETFs allow investors to invest in shares that track the price of gold.
This gives one flexibility and liquidity, as ETFs can be traded on any stock exchange. Understanding the differences between Gold ETFs and mutual funds helps investors choose the right option based on their risk appetite, investment goals, and liquidity preferences. Read on to unravel these differences!
Table of Contents
What is a Gold ETF?
A Gold ETF (Exchange-Traded Fund) is a type of investment fund that aims to track the price of gold. It is traded on stock exchanges, similar to stocks, allowing investors to buy and sell units throughout the trading day at market prices. Gold ETFs are popular for their liquidity, cost-effectiveness, and ease of trading compared to other forms of gold investment.
Gold ETFs typically invest in physical gold or gold-related financial instruments, such as gold futures contracts, to mirror gold's performance. By investing in a Gold ETF, individuals can gain exposure to gold's price movements without the need to buy, store, or insure the metal physically.
What are Gold Mutual Funds?
A Gold Mutual Fund, also known as a Gold Fund, is an open-ended mutual fund that allocates its investments to units of Gold ETFs. Similar to Gold ETFs, the primary objective of this fund is to invest in gold of 99.5% purity and generate income. Here, it is essential to remember that gold mutual funds only invest in gold via Gold ETFs.
They do not invest directly in the stocks of gold mining, refining, processing, and packaging companies. SEBI categorises mutual funds investing in these companies as thematic. Unlike gold mutual funds, the performance of a thematic gold fund hinges on the companies and themes it is associated with, not solely on physical gold price fluctuations.
What is the Difference Between Gold ETF and Gold Mutual Fund?
Understanding the differences between gold funds and gold ETFs is essential. Here are several key differences between them:
Pros of Investing in Gold ETFs and Gold Funds
Gold ETFs and Gold Funds offer easy access to gold investments, each with advantages. The pros of both options will help you choose the one that best fits your investment goals and preferences. Here's a breakdown of their key benefits:
Cons of Investing in Gold ETFs and Gold Funds
Investors who buy Gold ETFs or Gold Funds can access gold markets without owning physical metal, although both face specific disadvantages. Analysing the cons of these investment possibilities will assist you in your decision process. Here are a few of them:
Gold ETF or Gold Mutual Fund - Which is Better?
It is important to note that the nature of gold ETFs and mutual funds are very similar. Both provide a safe investment without worrying about theft or storage. People also get to invest in them to diversify their investment portfolio.
- Gold mutual funds offer moderate liquidity, redeemed in 1-2 days. They are suitable for people who want to wait a little while. On the other hand, Gold ETFs offer instant liquidity during market hours and are more flexible for investors.
- Gold Mutual Funds do not require a demat account, making it easy for investors who do not have one. Gold ETFs, however, require a Demat account for trading and, thus, are more suitable for those already accustomed to stock market transactions.
- Active Gold Mutual Funds will generally have a higher expense ratio. This is because an active management style costs more than a passive one. A passive Gold ETF will have a lower expense ratio.
The best option for systematic investment without a demat account is through mutual funds in gold. ETFs in gold offer better liquidity and lower costs and are much more suitable for lump-sum investors.
In conclusion, while individuals think that gold ETFs and gold mutual funds are products, they are not the same for investors. While they bear some resemblance, both options avoid direct contact with gold. Knowing the above differences could help investors choose the option most appropriate to their needs and the type of investment they are attempting to make.
Disclaimer: The information provided on this website is for general informational purposes only and should not be construed as financial, investment, or legal advice. While we strive to provide accurate and up-to-date content, we do not guarantee the completeness, reliability, or suitability of the information for your specific needs.
We do not promote or endorse any financial product or service mentioned in these articles. Readers are advised to conduct their own research, consult with financial experts, and make informed decisions based on their unique financial circumstances. Any reliance you place on the information provided here is strictly at your own risk.
FAQs about Gold MF vs Gold ETF
How do gold ETFs trade?
How do you trade off the gold mutual funds?
Which is more liquid: gold ETF or gold mutual fund?
Gold ETFs can be traded anytime during market hours and are more liquid than gold mutual funds, which are traded only at the NAV aftermarket closing.
Which has lower expense ratios, gold ETF or gold mutual funds?
Often, gold ETFs have lower expense ratios than more active gold mutual funds because the former track the price of gold and do not actively manage assets.
Which is better for long-term investment gold ETF or gold fund?
How much is the minimum investment in a gold ETF?
Most gold ETFs require investors to start investing with at least one unit; hence, the minimum investment amount is the price of one unit in the ETF.
How much is the minimum investment in a gold mutual fund?
What has better tax treatment gold ETF or gold mutual fund?
Are gold ETFs suitable investments for small investors?
Yes, gold ETFs are suitable investments for small investors because most have low investment requirements per unit.
Are gold ETFs a physical gold investment?
No, it is not so. Gold ETFs mirror the price of gold, and gold bullion, such as coins and bars, can be purchased separately.
Which is cheaper when investing frequently: gold mutual funds or gold ETFs?
Gold mutual funds, particularly SIPs, are more suitable for daily small investments than gold ETFs.
Which is better, gold ETF or gold mutual fund?
Are investments in gold mutual funds safer than gold ETFs?
Both are relatively safe, but gold mutual funds may have additional risks due to active management, while gold ETFs directly track gold prices.
Why choose a gold ETF over a gold mutual fund?
Gold ETFs offer lower expense ratios, better liquidity, and direct tracking of the price of gold, making them a cost-effective and straightforward option for gold exposure.
What is the primary difference between gold ETFs and gold mutual funds?
Gold ETFs are traded on exchanges and track the price of gold directly, whereas gold mutual funds are actively managed funds that invest in gold-related instruments.
Other Important Articles about Mutual Funds
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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