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 ETFs invest between 90 and 100% of their corpus in physical gold and this gold comes from banks approved by the Reserve Bank of India (RBI). To overcome this problem, fund houses started selling gold mutual funds as well as Gold backed IRA companies. Gold mutual funds invest in plans that buy gold ETFs. Gold mutual funds track the value of the units of gold ETF schemes, which in turn reflects the value of physical gold.
These mutual funds generate income based on the performance of the underlying asset. . On the other hand, in gold ETFs, you need a Demat account and a broker through which you can buy and sell them. Gold ETFs hold physical gold of equivalent value as an 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 an adequate price for both buyers and sellers. However, this liquidity varies between fund houses, making liquidity an important factor when investing in a gold ETF. A gold ETF is an exchange-traded fund (ETF) that aims to track the national physical price of gold.
They are passive investment instruments that are based on gold prices and invest in gold bars. Gold mutual funds can be purchased in mutual funds without a Demat account, but gold ETFs are traded on exchanges and require a Demat account. Gold ETF trading takes place through a dematerialized account (Demat) and a broker, making it an extremely convenient way to invest electronically in gold. 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.
This also works as a hedge against inflation, since you'll enjoy the benefits of owning gold without having real gold. Now, when you find the main difference between gold mutual funds and gold ETFs, invest in the path that best suits your needs. Nowadays, you can invest in gold in several ways, such as investing in gold ETFs, gold mutual funds and buying physical gold at the nearest retailer. Gold mutual funds do not invest directly in physical gold, but rather adopt the same position indirectly when investing in gold ETFs.
The minimum investment amount in gold mutual funds is 1000 INR (as a monthly SIP), while gold ETFs usually require 1 gram of gold as a minimum investment, which is close to 2,785 INR at current prices. They are managed by fund managers who monitor gold prices on a daily basis and trade with physical gold to optimize returns. Like an equity investment fund, in which an asset management company (AMC) collects a reserve of money from investors to invest in stocks, this is the case here, but with pure gold as a base. 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.
Among all the gold investment options available in India, gold mutual funds and gold ETFs are considered to be a better option, since they simplify the process of buying gold, providing greater liquidity and safer gold accumulation. Since you invest in an ETF backed by physical gold, it's better to use ETFs as a tool to benefit from the price of gold than to access physical gold. In short, gold ETFs are units that represent physical gold and that can be on paper or in dematerialized form. Gold ETFs are listed in the cash segment of the BSE & NSE, like any other company stock, and can be bought and sold continuously at market prices.
The difference between a gold ETF and a gold fund will help investors determine which investment vehicle best suits them. .