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Difference Between Gold ETFs And Gold Saving Funds

Today an investor have multiple investment options available in the market in order to gain from specific trend. Apart from other investment options, one more area has been identified and put forward for the purpose of investment i.e ‘Gold’. For the purpose of investing in Gold, mutual funds have emerged as a popular route. But there are different types of gold funds available in the market, to understand the difference between these types of funds can save you from making poor investment decision. Lets have a close look at the different types of Gold funds available in the market for the purpose of investment.

Gold ETF’s

An ETF is an Exchange Traded Fund, meaning it is traded on the major stock exchanges. A gold Exchange Traded Fund (ETF) is a financial instrument like a mutual fund whose value depends on the price of the gold prevailing in the market. A gold ETF tracks the price of the gold in real time and as the price of gold rises in the market, the price of the ETF is also rises by the same amount. Similarly, the fall in the price of gold will reflect drop in the price of the ETF. It is equal to holding physical gold but the difference is you don’t take the delivery of the gold in your hands i.e. you are keeping it electronically.

One Unit Of Gold ETF = 1 Gram Gold

The investor can buy and sell units as per their convenience on the stock exchange, just like they do with stocks. However, unlike a mutual fund, the units of a gold ETF have to be purchased or sold on the stock market. You need to have a demat account and a brokerage account with an online brokerage, or you may purchase it through your local stock broker. Most gold ETFs are traded on the National Stock Exchange (NSE), so you will need a broker who is a member of the NSE.

You can not start an automatic SIP in a gold ETF as ETFs has to be purchased on the stock exchange. If you wish to invest on a monthly basis in a gold ETF, you will have to do so manually by buying the units through your stock broker. The units will get credited to your demat account.

These ETFs have their own Expense Ratio which is considered very high, but that’s the price we pay to invest in gold electronically. Whenever you buy units of gold ETF, the equivalent amount of physical gold is purchased by the fund manager and kept in the store rooms. You will be charged percentage of total asset in the form of fee for the services offered by the fund manager which includes the custody of physical gold, insurance of physical gold etc..

Gold ETFs Vs Gold Fund

Gold Funds

There is also another option that is available from mutual funds and they are gold mutual funds. These are equity-oriented schemes as they invest in the stock of gold mining companies that are listed on the stock exchanges across the world. The returns of this fund will depend upon the movement of the companies on the stock exchange. Unlike a gold ETF, which shows a direct relationship with the price of gold, the same might not be witnessed here. Usually, there is a larger gain coming in for the gold companies when the prices go higher as they are able to post better results. However, these fund carries above-average risk then Gold ETFs.

One important thing here is, one can invest in this fund without a demat account and can set a SIP for the same. But the important point you should note here is that the underlying investment is still gold, but not directly! It’s indirectly through gold ETF’s, and now as there are two layers in between, you pay charges two times! So you pay charges for Gold saving funds and also for gold ETF’s, also for the gold saving funds there are high exit load’s.

Difference Between Gold ETFs Vs Gold Fund

Point Of Difference Gold ETF Gold Fund
Charges Expense Ratio Of Around 1% Gold Saving Funds : 0.5% + Underlying ETFs : 1%
Demat Account Required Not Required
Taxable Yes Yes
SIP Setup Not Possible Possible
Based Upon Market Price Of Gold Market Price Of Stocks

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