Gold exchange-traded funds (ETFs) invest in gold with a purity of 99 or 50%, while gold funds invest in gold ETFs. You can start investing in a gold fund with a minimum of 1,000 rupees. However, in the case of gold ETFs, the minimum investment amount would be equivalent to the current price of 1 gram of gold. Gold ETFs have lower management costs than gold mutual funds.
For those looking to invest in gold, Gold IRA custodians can provide a secure and reliable way to do so. Since gold MFs invest in gold ETFs, their expenses also include the expenses of gold ETFs. Keeping gold in its physical form at home is fraught with risks. Unlike physical gold, owning gold in the form of an ETF (exchange-traded fund) is much more convenient. Gold ETFs are passively managed and reflect current gold prices without distortions, unlike physical gold prices, which vary across India depending on location and the dynamics of supply and demand.
In addition, gold ETFs have fewer expenses than buying or selling physical gold. The main costs of gold ETFs include Demat charges, the expense ratio and brokerage charges, bringing the annual cost to approximately 0.5-1%. Gold mutual funds are around 0.6 to 1.2% per annum, including the expenses of the gold ETFs mentioned above and charges of 0.1-0.2% for managing gold. There are no exit charges for gold ETFs, while, in the case of gold funds, you may have to pay an exit charge of 1 to 2% when redeeming them within a year.
The difference in the costs involved for both is not very high, so it boils down to whichever investment method you find most convenient. They are managed by fund managers who monitor gold prices on a daily basis and trade with physical gold to optimize returns. Although you can invest in a gold fund through the SIP in multiples starting from just 500 rupees that provide you with units of the gold fund according to the current net asset value of that day; when investing in ETFs, you have to buy ETF units and the minimum you need to buy is 1 unit. The net asset value of gold funds changes in this situation as the price of the gold ETFs in which they have invested changes.
When the general appetite of stocks to take risks decreases, international gold prices appear to skyrocket and record strong returns. Gold ETFs are publicly traded, and the only role of a fund manager in these plans is to buy gold bars and deposit them in the hands of the plan's depositary. Unlike gold funds, ETFs have no exit charges, ensuring that investment firms can buy or sell units during market hours at any time. Most of the time, the collapse of the stock markets is often accompanied by a rise in gold prices, which explains why gold is compulsorily included in many portfolios as a hedge asset.
Therefore, for greater convenience, the fund charges a slightly higher commission to investors, which is around 1.5% of the fund's AUM (assets under management), while gold ETFs only charge around 1%. When investing in gold ETFs, the minimum units that investors can buy are 1 unit of gold, which is equivalent to 1 gram of physical gold. Fixed-equity mutual fund plans that make investments in physical gold with a purity of 99.5% are known as gold exchange-traded funds (ETFs). Gold mutual funds, like any other investment fund, make profits based on the return on their underlying investment.
Since gold ETFs are traded on the stock exchange in the form of stocks, buying and selling transactions can only be made through a broker and a Demat account. As you can see from the differences above, while Gold Savings Funds do not require any exclusive attention, additional charges are required. The gold mutual fund, on the other hand, works on a fund structure that invests mainly in gold ETFs as the underlying asset. Without a Demat account, gold mutual funds can be purchased in mutual funds; however, gold ETFs are traded on exchanges and need a Demat account.