Gold Mutual Funds and Gold ETFs are also considered a better choice among the Gold Investment options in India, which simplify the process of buying gold by improving liquidity and ensuring safer gold accumulations. But investors are frequently confused between the two.
What are Gold Mutual Funds?
Gold Mutual funds are a form of mutual funds investing in gold reserves, either directly or indirectly. Stocks of gold manufacturing and distributing syndicates, pure gold, and mining company stocks are the most common investments. It’s a straightforward way to invest in a product without having to buy it in its physical form.
Gold mutual funds are open-ended investments centered on the gold Exchange Traded Fund’s units. Because the underlying asset is retained in the form of physical gold, the value of this expensive metal has a direct impact on its worth. These funds could also be used to safeguard an investment from financial crises by acting as a safeguard. Many people diversify their investment portfolio by putting 10% to 20% of their money into gold funds to protect themselves from market volatility.
The major goal of these investments is to generate wealth over the course of the investment period and to provide a safety net in the event of a market crash. The performance of gold’s underlying equities often varies substantially due to its fluctuating pricing.
What is Gold ETF?
A gold ETF, or Exchange-traded Fund, is a commodity-based Mutual Fund that invests in gold and other precious metals. These exchange-traded funds act similarly to individual stocks and are exchanged on the stock exchange in the same way.
Physical gold, in this scenario, is represented by Exchange-traded Funds both in dematerialized and paper context. An investor invests in stocks rather than gold, and when the stock is traded, they are given the unit’s equivalent in cash rather than gold.
These funds can also be utilized as an industry exchange-traded fund, despite being a commodity-based traded fund. It is an excellent investment strategy for diversifying a financial portfolio and gaining exposure to a range of industries, such as gold mining, manufacturing, and transportation. These exchange-traded funds are easier to get and give a more convenient option to participate in the gold business.
Gold ETF vs Gold Mutual Fund.
Gold ETFs gold ETF is an open fund that is traded on stock markets. It’s a tool based on the price of gold-on-gold bullion investments. Gold ETFs invest 99.5% in pure gold (by RBI-approved banks). They are run by fund managers who monitor gold and commercialize physical gold daily to optimize their returns. For buyers and sellers alike, Gold Exchange-traded Funds offer high liquidity.
Gold Mutual Funds Gold Mutual Funds is a type of Gold ETFs. These are mainly investment schemes in Gold ETFs and associated assets. Gold Mutual Funds are not investing directly in physical gold but are indirectly placed by investing in Gold ETFs.
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Standard rate:
Gold Mutual Funds typically requires an initial investment of INR 1,000 (as a monthly SIP), but Gold ETFs traditionally require a preliminary investment of 1 gram gold, which is approximately INR 2,785 at current values.
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System of Investment:
There are gold SIP funds but no gold ETFs. Gold mutual funds can be bought without a Demat account, while Gold ETFs must be traded via an exchange and requires a Demat account.
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Trading expense:
Gold ETFs have lower management charges than Gold Mutual Funds. Gold mutual funds that invest in gold exchange-traded funds (ETFs) bear Gold ETF expenses as well.
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Convenience:
ETFs can be converted to metal at any time; however, gold Mutual Funds, like any other equity, are held in a Demat account and is not convertible.
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Liquidity:
ETFs, unlike gold funds, do not have exit loads, which means that investment firms can purchase or sell the shares at any moment during market hours. The sale of units of Gold Funds to the fund house on the NAV can be redeemed the very same day.
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Tax Payment:
The long-term rate of taxation on gold investments made through mutual funds or exchange-traded funds is 20% plus a 4% fee. Short-term investors (those who keep their investments for less than 36 months) would avoid paying direct taxes on their profits. Instead, those profits are applied to other incomes, and taxes are paid in accordance with the applicable slabs.
Read Next: “Growth vs Value Investing.“
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