By BrandsShouts Gold has always been a popular investment choice in India. Traditionally, Indians invested in physical gold—coins, jewellery, or bars—but in recent years, digital gold investments like Gold ETFs (Exchange Traded Funds) and Gold Mutual Funds have become widely popular. They provide the benefits of gold ownership without the hassles of storage, making them ideal for modern investors.
However, many investors are confused about which option is better: Gold ETF vs Gold Mutual Fund. This article explains both, compares their features, advantages, drawbacks, and guides you on making the right choice.
What is a Gold ETF?
A Gold ETF is an exchange-traded fund that invests in physical gold. When you buy a unit of a Gold ETF, you essentially own a small portion of gold stored in secure vaults by the fund.
Key Features:
- Traded on stock exchanges like NSE or BSE
- Price depends on real-time gold prices
- Requires a Demat account to invest
- Can be bought and sold anytime during market hours
- Expense ratio is usually 25% to 0.50% per year
Gold ETFs mirror the actual price of gold very closely, making them a transparent way to invest.
What is a Gold Mutual Fund?
A Gold Mutual Fund, also called a Gold Fund, invests primarily in Gold ETFs or physical gold. Unlike ETFs, Gold Mutual Funds are bought and sold through mutual fund platforms and do not require a Demat account.
Key Features:
- Can be purchased through AMCs (HDFC, SBI, ICICI, etc.) or online platforms
- Investments can be lump sum or through SIP
- NAV updates once daily, not in real time
- Expense ratio slightly higher than ETFs: 40% to 1%
Gold Mutual Funds are convenient for investors who prefer mutual fund platforms over stock exchanges.
Key Differences Between Gold ETF and Gold Mutual Fund
| Feature | Gold ETF | Gold Mutual Fund |
| Ownership | Units represent physical gold | Invests in Gold ETFs or gold-related assets |
| Trading | Real-time on stock exchanges | Bought/sold through fund platform at daily NAV |
| Minimum Investment | Price of 1 unit (around ₹5,000–₹6,000) | As low as ₹500 via SIP or ₹5,000 lump sum |
| Account Needed | Demat + Trading account | Only bank account required |
| Expense Ratio | Low (0.25–0.50%) | Higher (0.40–1%) |
| Liquidity | High, intraday | Only after NAV declared (T+1 day for redemption) |
| Price Tracking | Directly linked to gold price | Slight lag, depends on ETF price |
Advantages of Gold ETFs
- Direct Gold Exposure: Closely tracks gold price.
- Transparency: You can see real-time price changes on stock exchanges.
- Lower Cost: Minimal expense ratio.
- Liquidity: Buy and sell anytime during market hours.
- Professional Storage: No risk of theft or loss.
Advantages of Gold Mutual Funds
- No Demat Required: Easier for beginners or small investors.
- Small Investment via SIP: You can invest as low as ₹500/month.
- Automatic Investment Plans: Easier to create long-term goals.
- No Market Trading Needed: Good for investors who prefer simplicity.
- Ideal for Mutual Fund Portfolios: Can be part of diversified investment strategies.
Disadvantages of Gold ETFs
- Requires Demat and trading account
- Needs knowledge of stock market buying/selling
- Small investors may find minimum units expensive
- Price fluctuates intraday, may cause stress for some investors
Disadvantages of Gold Mutual Funds
- Slightly higher expense ratio than ETFs
- NAV updates only once a day
- Less liquidity compared to ETFs (cannot sell intraday)
- Returns slightly lag behind actual gold price due to indirect ETF exposure
Gold ETF vs Gold Mutual Fund: Which One Should You Choose?
The answer depends on your investment style, goal, and convenience.
Choose Gold ETF If:
- You want real-time exposure to gold price
- You have a Demat account
- You are comfortable with stock market trading
- Your goal is short-term investment or intraday buying/selling
Gold ETFs are ideal for investors who want direct, transparent, and low-cost exposure.
Choose Gold Mutual Fund If:
- You are a beginner or small investor
- You want to invest regularly via SIP
- You prefer ease of investing through mutual fund platforms
- Your goal is long-term wealth creation
Gold Mutual Funds are suitable for investors who value convenience and small investments over real-time trading.
Taxation: Both Are Treated Similarly
- Short-term capital gains (held ≤ 3 years) taxed at income tax slab rate
- Long-term capital gains (held > 3 years) taxed at 20% with indexation
- Dividend distributions are tax-free in the hands of investors (if any)
From a taxation perspective, Gold ETFs and Gold Mutual Funds are largely similar.
Final Thoughts
Both Gold ETFs and Gold Mutual Funds are excellent alternatives to physical gold. The choice depends on your convenience, investment horizon, and trading comfort.
- Choose Gold ETFs if you want direct, low-cost, and liquid exposure to gold.
- Choose Gold Mutual Funds if you prefer simplicity, SIP options, and smaller investments.
For long-term investors, both options work well as a hedge against inflation and portfolio diversification. Some investors even combine both: using ETFs for bulk investment and mutual funds for SIPs.
The key is to stay invested, diversify, and align your gold investments with your overall financial goals. This ensures that gold serves its purpose as a safe, long-term wealth preservative in your portfolio.