Gold funds vs ETFs: Which one should investors choose now?
ETMarkets.com
Synopsis
Gold is gleaming, with returns near 30% in the past year, prompting investors to consider gold funds and ETFs. Both offer exposure without physical gold hassles, but which is better? Gold ETFs allow real-time trading like stocks, while gold funds offer SIPs for as little as ₹500.
By Surbhi Khanna, ET Online
Last Updated:
With the gold market experiencing robust performance and contributing to one year gains of around 30%, many investors now look to invest in gold through financial instruments such as gold funds or gold exchange-traded funds (ETFs). These investment options offer exposure to the precious metal without the hassle of buying physical gold.
Gold ETFs are traded on the stock exchanges, allowing real-time buying and selling to investors during market hours, and with a minimum investment of one unit whereas gold funds operate at the day-end NAV and offer convenience of SIP investments with a minimum amount of Rs 500.
Also Read | 19 equity mutual funds multiplied investors’ SIP investments by over 3x in 7 years
"Gold ETFs and Gold Funds provide a hassle-free way to invest in gold, removing concerns of storage, threats and purity. Both options pool investor money into gold-related securities but cater to different needs. Gold ETFs, traded on stock exchanges, allow real-time buying and selling during market hours, with a minimum investment of one unit (equivalent to one gram of gold). In contrast, Gold Mutual Funds operate on the NAV at the end of the day and offer the convenience of SIP investments starting as low as Rs 500,” said Adhil Shetty, CEO of Bankbazaar.com.
In the last one year, gold funds have offered an average return of 21.30% with UTI Gold ETF FoF offering the highest return of around 21.80% in the same period. SBI Gold Fund posted a return of around 21.66%, followed by ICICI Pru Regular Gold Savings Fund(FOF) which gave 21.65% in the last one year.
Gold ETFs in the last one year gave an average return of 21.94%. LIC MF Gold ETF gave the highest return of around 22.19% in the last one year, followed by UTI Gold ETF which gave 22.11% in the same period. Quantum Gold Fund ETF gave the lowest return of around 21.64% in the same period.
The expert recommends that gold funds suit those investors who are seeking systematic and long-term flexibility whereas gold ETFs are ideal for investors who have demat accounts or are looking to convert the physical gold.
“While Gold ETFs are ideal for those with a Demat account or those looking to potentially convert the physical gold, Gold Mutual Funds suit investors seeking systematic, long-term investment flexibility. Your choice depends on your investment goals and what suits your fund requirements," Shetty recommends.
Another expert recommends that investors should invest in Gold ETFs as a strategic component in their portfolio, especially as a hedge against market volatility and inflation. Investors should allocate 5-10% of their portfolio in Gold ETFs ensuring balanced exposure without over concentration
“For allocation, a prudent approach could be to allocate 5-10% of one's portfolio to Gold ETFs, ensuring balanced exposure without over concentration. This allocation provides a cushion during economic uncertainties while maintaining focus on equities, bonds, and other growth assets for long-term wealth creation,” he added.
Gold funds are mutual funds that invest in Gold ETFs or directly in companies involved in mining and production of gold. These are open-ended funds, and the returns are linked to the performance of gold prices. You don’t need a demat account to invest in gold funds, and you can do so directly through mutual fund platforms.
Gold ETFs are exchange-traded funds that track the price of physical gold. Each unit of a Gold ETF is backed by a specific quantity of gold, usually equivalent to one gram. They are listed on stock exchanges, and you need a demat and trading account to buy and sell them.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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With the calendar year 2024 having seen the launch of only one Sovereign Gold Bond (SGB) scheme so far, the investors’ interest have moved towards gold funds and gold ETFs. With two choices available, investors are confused about which one they should choose for allocation.Gold ETFs are traded on the stock exchanges, allowing real-time buying and selling to investors during market hours, and with a minimum investment of one unit whereas gold funds operate at the day-end NAV and offer convenience of SIP investments with a minimum amount of Rs 500.
Also Read | 19 equity mutual funds multiplied investors’ SIP investments by over 3x in 7 years
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"Gold ETFs and Gold Funds provide a hassle-free way to invest in gold, removing concerns of storage, threats and purity. Both options pool investor money into gold-related securities but cater to different needs. Gold ETFs, traded on stock exchanges, allow real-time buying and selling during market hours, with a minimum investment of one unit (equivalent to one gram of gold). In contrast, Gold Mutual Funds operate on the NAV at the end of the day and offer the convenience of SIP investments starting as low as Rs 500,” said Adhil Shetty, CEO of Bankbazaar.com.
In the last one year, gold funds have offered an average return of 21.30% with UTI Gold ETF FoF offering the highest return of around 21.80% in the same period. SBI Gold Fund posted a return of around 21.66%, followed by ICICI Pru Regular Gold Savings Fund(FOF) which gave 21.65% in the last one year.
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Gold ETFs in the last one year gave an average return of 21.94%. LIC MF Gold ETF gave the highest return of around 22.19% in the last one year, followed by UTI Gold ETF which gave 22.11% in the same period. Quantum Gold Fund ETF gave the lowest return of around 21.64% in the same period.
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Both types of mutual fund categories based on gold have offered similar average returns in the last one year. If you are considering investing in these funds, how should you allocate your resources?The expert recommends that gold funds suit those investors who are seeking systematic and long-term flexibility whereas gold ETFs are ideal for investors who have demat accounts or are looking to convert the physical gold.
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Also Read | 16 equity mutual funds offer over 30% CAGR in three years“While Gold ETFs are ideal for those with a Demat account or those looking to potentially convert the physical gold, Gold Mutual Funds suit investors seeking systematic, long-term investment flexibility. Your choice depends on your investment goals and what suits your fund requirements," Shetty recommends.
Another expert recommends that investors should invest in Gold ETFs as a strategic component in their portfolio, especially as a hedge against market volatility and inflation. Investors should allocate 5-10% of their portfolio in Gold ETFs ensuring balanced exposure without over concentration
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“Investors should consider Gold ETFs as a strategic component in their portfolio, especially as a hedge against market volatility and inflation. Gold typically performs well during economic downturns and geopolitical tensions, as seen with current global conflicts, making it a valuable diversifier. Gold ETFs offer benefits such as low transaction costs (0.05 - 0.2), high liquidity, and ease of trading, unlike physical gold which has higher costs and storage issues,” said Chakravarthy V., Cofounder and Director, Prime Wealth Finserv.“For allocation, a prudent approach could be to allocate 5-10% of one's portfolio to Gold ETFs, ensuring balanced exposure without over concentration. This allocation provides a cushion during economic uncertainties while maintaining focus on equities, bonds, and other growth assets for long-term wealth creation,” he added.
Gold funds are mutual funds that invest in Gold ETFs or directly in companies involved in mining and production of gold. These are open-ended funds, and the returns are linked to the performance of gold prices. You don’t need a demat account to invest in gold funds, and you can do so directly through mutual fund platforms.
Gold ETFs are exchange-traded funds that track the price of physical gold. Each unit of a Gold ETF is backed by a specific quantity of gold, usually equivalent to one gram. They are listed on stock exchanges, and you need a demat and trading account to buy and sell them.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
