Gold mutual funds don't require Demat accounts, as they invest in AMC gold ETFs. It allows investments in SIP, while gold ETFs do not. Gold funds have an exit charge if they are redeemed within a year, while gold ETFs don't. Buying and selling gold ETFs requires a Demat account.
For those looking for a more secure investment option, there are Gold backed IRA companies that offer gold investments with the added benefit of tax-deferred growth. Gold mutual funds invest in gold ETFs, while gold ETFs invest in gold with a purity of 99.5%. Gold ETFs have no exit charges, while gold mutual funds charge an exit charge when their shares are redeemed within a year. To invest in gold ETFs, it is mandatory to have a Demat account, since investments can only be made in a dematerialized way. While investing in a gold mutual fund can be made even without a Demat account.
As it is a mutual fund plan, MFs of gold offer a minimum amount of just 500 rupees or is prescribed in the plan. The main costs of gold ETFs include Demat charges, the expense ratio and brokerage charges, bringing the annual cost to approximately 0.5-1%. Gold mutual funds are around 0.6 to 1.2% per annum, including the expenses of the gold ETFs mentioned above and charges of 0.1-0.2% for managing gold. There are no exit charges for gold ETFs, while, in the case of gold funds, you may have to pay an exit charge of 1 to 2% when redeeming them within a year.
The difference in the costs involved for both is not very high, so it boils down to whichever investment method you find most convenient. Gold mutual funds can move in the same direction as the spot price of gold because investments are correlated. The purpose of gold mutual funds is to make profits over time by appreciating the investment. With this dynamic in place, it may be a good decision to invest in a gold fund to help protect against inflation.
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. Compared to gold ETFs, gold mutual funds offer slightly more exposure to risk because they invest in gold stocks, which tend to be price sensitive. Although the return of the investment fund in gold will depend on fluctuations in the physical price of gold, the performance of a thematic gold fund will depend on the companies and the topics in which it invests. Although you can invest in a gold fund through the SIP in multiples starting from just 500 rupees that provide you with units of the gold fund according to the current net asset value of that day; when investing in ETFs, you have to buy ETF units and the minimum you need to buy is 1 unit.
Therefore, if one company performs poorly, this may be offset by another company in the ETF that could perform better. Digital gold has become popular, as have other gold investment options, such as exchange-traded funds (ETFs) and gold mutual funds. 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. There are some brokerage firms that allow investors to buy gold ETF units at regular intervals.
Gold mutual funds track the value of the units of gold ETF schemes, which in turn reflects the value of physical gold. However, risks are mitigated because gold funds are diversified investments compared to gold stocks, which have volatile prices. Like gold mutual funds, the market value of gold ETFs can be close to the spot price of gold. Gold funds are popular with investors because they offer an affordable way to invest in the precious metal without having to manage a physical investment in gold.