Gold ETFs contain physical gold of equal value to the underlying asset. But, on the contrary, gold mutual fund units are issued with gold ETFs as the underlying asset. Gold ETF units are traded on exchanges and therefore offer better liquidity and the right price for both buyers and sellers, 6 days ago. Keeping gold in its physical form at home is fraught with risks.
In contrast to 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 based on location and demand-supply dynamics. In addition, gold ETFs have less expense than buying or selling physical gold. A gold ETF is a form of exchange-traded fund that can be used to replace physical gold.
Physical investment in gold is inconvenient and risky, as any investor knows. Gold ETFs are passive investment vehicles that invest in gold bars and depend on gold prices. The reserves of an ETF are completely transparent due to its clear pricing of gold. In addition, in relation to physical investments in gold, ETFs have much lower expenses due to their special structure and creation process.
Gold ETFs invest in gold bars with a purity of 99.5 percent, which is equivalent to holding gold. Key costs of gold ETFs include Demat charges, expense ratio, and brokerage charges, bringing the annual cost to approximately 0.5-1%. Gold mutual funds are close to 0.6-1.2% per annum, which includes the aforementioned gold ETF charges and 0.1-0.2% gold management charges. There are no exit charges applicable to gold ETFs, whereas, for gold funds, you may have to pay an exit charge of 1 to 2% on the redemption within a year.
The difference in the costs involved for both of them is not very high, therefore, it is reduced to the investment method that is most convenient for you. Experts say that for investors looking to make a regular investment rather than a one-time investment, the gold fund option is better and rewarding. Both gold ETFs and gold funds have the net asset value (NAV) calculated at the end of any business day. However, in the case of gold ETFs, the minimum investment amount would be equivalent to the current price of 1 gram of gold.
The difference between a gold ETF and a gold fund will help investors determine which investment vehicle best suits them. Investing in gold ETFs is ideal for people looking for gold from an investment standpoint rather than using it for jewelry or personal use. There are some brokerages that allow investors to purchase units of gold ETFs at regular intervals. The gold asset class is closely linked to other asset classes, such as bonds and stocks, and is not affected by volatile economic conditions, such as inflation.
As has been observed in the recent past, gold and equity markets often follow a swaying pattern, i.e. taxation. If you invest in gold with mutual funds or exchange-traded funds, the long-term capital gains tax rate would be 20% plus a 4% stoppage. In addition, gold funds are an excellent alternative for investors looking to diversify across a different asset class.
In addition, investors who cannot invest a high value in buying physical gold can invest through gold funds. In conclusion, while gold funds and ETFs are viable investment options, your decision between the two may be a call of convenience.