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Abhibyakti Singh

Abhibyakti Singh

Executive Assistant, LXME

Gold Mutual Funds vs Gold ETF: Understand the Difference

The love story between women and gold is well known. For years, women have bought gold jewelry and stored them but since then smarter and better options for gold investment have emerged and women now have the opportunity to invest in their favorite asset with ease and without the fear of theft. Two such options are: Gold Mutual Funds and Gold ETFs. Let’s discuss in this blog what is the difference between gold ETF and gold Mutual Fund and which is better gold ETF or gold mutual fund.

What are Gold ETFs?

Gold ETFs (Exchange Traded Funds) are passively managed funds that provide a way to invest in gold without physically storing the gold bought.

Features

  • They invest in gold of 99.5% purity and one unit of gold ETF is equal to one gram of gold. Minimum Investment amount is 1 unit.
  • For every unit of gold ETF sold, the fund house stores an equivalent amount of physical gold
  • They are traded on the stock exchange and their value is tied to the price of physical gold.  

How do they work?

An example –

Sheena wants to invest in gold ETFs. To do so, her first step is to open an online trading and demat account. Once done, she selects a particular gold ETF she wants to invest in from the many types of Gold ETF available in the market. She invests through Lump Sum and decides to buy 3 units of the Gold ETF. She fills in her details and starts investing.

What are Gold Mutual Funds?

Gold Mutual Funds are mutual funds that invest in gold and different gold-related assets including Gold ETFs.

Features

  • They are professionally managed funds that invest in gold assets on your behalf.
  • Gold Mutual funds invest in Gold ETFs and in turn, Gold ETFs invest in physical gold.
  • They are bought from a fund house and you can invest with just Rs.100.

How do they work?

An example –

Shilpa wants to invest in gold MFs. She decides to invest in LXME’s Rs 100 Gold Fund. All she has to do is download the LXME app, she can begin investing without a demat account! She can invest through SIP or Lump sum, in fact, she has the option to start investing with just Rs. 100.

Check out LXME’s Rs. 100 Gold Fund and start investing in gold mutual funds with as little as Rs. 100.

Now let’s have a look at the difference between gold ETF and gold mutual fund

Gold ETF vs Gold Mutual Fund

PARAMETERSGOLD ETFGOLD MUTUAL FUND
MeaningThey allow investors to invest in gold of 99.5% purity without physically storing it. Investors hold paper gold while the fund house keeps storage of the actual gold.They are open-ended mutual funds that invest in Gold ETFs and other gold-related assets. They are professionally managed and monitored.
Minimum Amount1 unit (Price of 1 gram of Gold)Rs. 100, SIP or Lumpsum
SIP AvailabilityCannot invest through SIPCan invest through SIP
Demat a/cDemat A/c is mandatoryDemat a/c is not required
Mode of holdingHeld in Demat AccountHeld by Fund House
PricingPrice depends on the market value of goldPrice depends on the NAV of Fund
LiquidityCan be traded on the stock exchangeBought and sold with the fund house, based on the NAV of that day
Management MethodPassively managedActively managed by professionals
RiskSubject to market riskSubject to market risk

Which is better Gold ETF or Gold Mutual Fund

Gold Mutual Funds, Gold ETFs, SBGs, etc. are all smarter ways to invest in gold. They are safe and secure options to gain the advantage of gold investment as there is no risk of theft. Gold ETFs and Gold Mutual Funds have many similarities. They both provide alternatives to physical gold, eliminate the risk of storage, and help investors save on various costs they might otherwise incur while purchasing physical gold/gold jewelry.

However, there are a few points of differences between the two that need to be considered from an individual point of view before making an investment decision.

How is Gold MF different from Gold ETF?

  1. You can invest via SIP. You can begin with just Rs. 100.
  2. They are actively managed by professionals.
  3. You can redeem your units on demand.
  4. You don’t need a demat account to invest.

If a woman prefers to invest with a small sum of money, via SIP and Lump sum and without a demat account, Gold MF could be a good investment option for her and the advantages of Gold MF will outweigh the benefits of buying gold ETF.

In conclusion, the ultimate decision between investing in Gold ETF vs Gold Mutual Fund depends on a woman’s investment goals, risk appetite and her preference in investment method.

FAQ’s

What’s the minimum amount needed to start investing in gold mutual funds?

You can start investing in gold mutual funds with a minimum of Rs. 100.

Do I need a demat account to invest in Gold Mutual Funds?

No, you do not need a demat account to invest in Gold Mutual Funds.

Are there any gold ETF Tax exemption?

No, there are no tax exemptions as such on Gold ETFs in India. Gold ETFs are taxed according to the investor’s applicable tax slab, irrespective of the holding period.

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