No matter what, the love for gold is immeasurable when it comes to Indians. Other than simply buying gold, you can invest in this valuable avenue through gold ETFs and gold mutual funds. Now, before we go any further, let’s learn and understand the differences between the aforementioned instruments in detail.
To begin with, what's a gold ETF?
Gold ETFs are passively-managed exchange-traded funds. They mimic a particular index and invest in gold and gold-related assets.
Unlike physical gold, gold ETFs are presented in a dematerialized form. Each unit of gold ETF corresponds to the value of one gram of gold, which is 99.5% pure.
Just like company stocks, this asset class is traded on the National Stock Exchange and Bombay Stock Exchange. You can buy and sell gold ETFs on these exchanges like stocks.
The best part of these ETFs is that you don’t need any storage space to store gold. Moreover, the taxability is the same as that of physical gold. Investors have to pay capital gain tax on profits obtained on gold ETFs.
So, if you are planning to diversify your portfolio, gold ETFs are an ideal finance avenue to add to your investment list.
Now that you have learned about gold EFTs, let’s understand Gold Mutual Funds
Gold mutual funds are those avenues that invest in multiple gold-related assets like physical gold, gold-mining companies, etc. You can invest in gold mutual funds via SIPs.
The investor doesn't need to have a demat account to invest in these funds. You can start your SIP in gold mutual funds with a basic amount of Rs 1,000.
Difference between Gold ETFs vs Gold Mutual Funds
- In gold EFTs, investment is made in physical gold that equals 99.5% purity, whereas, in gold mutual funds, investment is directly made into gold EFTs via SIP.
- You don’t have the SIP option for gold ETFs but it exists for gold mutual funds.
- Investors are not levied with exit load in gold ETFs but it exists for gold mutual funds if they withdraw in less than a year.
- Gold ETFs are traded on NSE and BSE, so it’s easy for an investor to buy and sell at their convenience. Gold mutual funds aren’t listed on any stock exchange but you can buy and sell at NAV on any given day.
- Both gold ETFs and gold mutual funds are a perfect addition for portfolio diversification.