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Gold Mutual Fund or Gold ETF

  July 30,2020

Gold Mutual Fund or Gold ETFs? Which one is right for you

"Don't put all your eggs in one basket"

This old saying is still true. And, one of the areas of our life where we should not keep all your eggs in the same basket is our investment portfolio. Diversification of our portfolio is not a luxury but a necessity. The recent situation has made us all aware of the importance of diversification and have shown us that we cannot rely on just one investment option.

While the equity markets may recover, having a haven asset like gold can help you to put your worries on the back burner. Typically, gold and equity returns move in the opposite direction. Gold performs better when clouds of pessimism float in the market.

Please remember to see gold as a hedging option rather than an investment option. The role of gold in your portfolio is to protect your portfolio from drastic swings. The price of gold rises whenever there is uncertainty in the market. And the prices come down when normalcy returns.

We Indians love to hoard gold and we are the top consumers of gold. However, buying physical gold is not an effective way to invest in gold.

There are a few ways to invest in gold with none of the risks associated with physical gold. Gold mutual funds and gold ETFs are the two investment options offered by mutual fund houses that let you take part in the price movements of gold online.

In this article, we will discuss gold ETFs and gold mutual fund to help you to decide the right choice for yourself.

What is Gold ETF?

Gold ETFs are funds that invest in physical gold of 99.5% purity. As a result, the returns given by gold ETFs are in tandem with the gold returns.

One unit of the gold ETF is equivalent to one gram of gold. The units of gold ETF like stocks are listed on the stock exchanges. This makes gold ETFs a liquid investment. However, the liquidity may vary across mutual fund houses.

A Demat account is needed to invest in gold ETFs.

As gold ETFs are listed on the exchanges and there is no active involvement of the fund manager, the management cost of these funds is very low compared to other actively managed funds.

What is gold mutual funds?

Gold mutual funds are open-ended funds that invest in gold ETFs. As gold funds invest in gold ETFs which is backed by gold, the returns given by gold funds are similar to gold returns.

Gold funds are an easier investment option for retail investors who don't have a Demat account.

Investors with a regular sum of money can also invest in gold mutual funds through Systematic Investment Plans(SIP). In SIP, investors can invest a specific sum of money periodically.

The management cost of gold ETFs can be a tad higher than gold ETFs.

Who should invest in Gold ETFs and gold mutual funds?

Investors who have a Demat account and want to take the benefit of price fluctuations in gold can invest in gold ETFs. As gold ETFs are listed on exchanges and offers easy liquidity, investors can invest in gold ETFs from the short-term horizon.

Gold mutual funds are better suited for retail investors who don't have a Demat account. Investors can invest in gold funds to plan for their children's marriages or diversify their portfolio through the SIP route.

How are Gold ETFs and gold funds taxed?

As GoldETFs and gold funds are non-equity investment options, capital taxation is similar to debt funds. Short-term capital gains and long-term capital gains taxes are applicable on units held less than 36 months and more than 36 months respectively. Short-term capital gains tax are applicable as per your tax slab while you have to pay 20% of capital gains along with indexation benefits.


If you want to invest in gold, you can look at investing in gold mutual funds or gold ETFs than physical gold. Gold ETFs and funds have several benefits over physical gold as there are no risks that are associated with buying physical gold. Feel free to call us to know more about Gold Funds.