Difference between Gold ETF and Gold Mutual Funds
Those wanting to invest in mutual funds investment are constantly thriving to add gold to their portfolios and are often unsure about choosing between Gold ETF and Gold Mutual Funds. The thought is often confusing: should you buy a fund that owns exchange traded fund tracking the price of gold or the one that owns gold related stocks. Whatever you choose would certainly decide the destination, where you take your money from current level.
What are Gold ETFs?
Gold ETFs are those funds that invest in physical gold of 99.5 per cent of purity. In general conditions, gold ETF returns are usually in line with the variance in prices of physical gold. Gold ETFs invests 90-100 per cent in physical gold sourced from RBI approved banks and 0-10 per cent in so called debt instruments. Anyone can buy an ETF for the value of at least one gram of physical gold with exception of Quantum AMC that offers 0.5 grams option for each unit. Gold ETFs offers right price and liquidity for both buyers and sellers and are traded in exchanges. The liquidity can vary across fund houses, which is why liquidity is an important factor when you plan to invest in Gold ETFs.
Gold Mutual Funds
A Gold fund, on the other hand, is an open ended fund which uses the principle of investing in gold ETF. It is always easier for any investor to go for a gold fund, since it does not involve any hiccups of having a DEMAT account, which, on the other hand is required while investing in ETFs. The more prominent difference between gold ETF and gold mutual fund is that the latter is a little costly in form of annual expenses, which may be as high as 1.5 per cent of the asset under management. This charge usually does not exceed 1 per cent in case of gold ETFs. Just like gold ETFs, gold mutual funds are traded on prices of gold and have similar returns as well.
The basic similarity between gold ETFs and gold funds is that they both depend on gold rates for their varying prices. The core difference between both lies on the fact that it is always easier to own a gold mutual fund if investing for lesser amount and preferable for someone who does not want to put their mind too much into the regular trading process.