Which is a better investment: Gold mutual funds or gold ETFs?

The repo rates have been hiked, the stock market is in red and the rising inflation rate is slowly eating into the value of our savings. No investment looks good enough for future prospects. Gold with its sporadic and short bursts of price increase seems more promising than other investment options. Buying physical gold and storing it may not be easy. Liquidating it when required can be cumbersome. Sovereign gold bonds (SGBs) have a lock-in period of a minimum of five years, which means that you have to wait a while before redeeming the same. You are now left to choose between gold exchange-traded funds (ETFs) and digital gold or gold mutual funds.

Gold mutual funds are different from gold ETFs despite both being bought via the web. Not many investors are aware of how these two differ and, hence, some information regarding the same would be useful before you dive in to invest in the yellow metal.

• To start with, gold mutual funds invest in gold ETFs while the latter invest in gold of 99.50 per cent purity.
• You need a Demat and trading account to invest in gold ETFs. However, you can always invest in gold mutual funds either online (direct mutual funds) or through an agent (regular mutual funds).
• You can start investing in gold mutual funds with a minimum investment of Rs 1000. However, the minimum investment required for gold ETFs would be equal to or more than the current price of one gram of gold.
• Like other mutual fund investors, those parking money in gold mutual funds must pay an exit load on redeeming units within a year. Comparatively, gold ETFs are cheaper as there are no exit loads to be paid.
• Redeeming gold ETFs is easy than that in gold mutual funds. Since gold ETFs are traded on stock exchanges, you can buy or sell units at any time of the day during trading hours. You can however opt for the redemption of gold mutual funds only at the end of the day. To buy fresh units, you have to apply to the fund house for fresh purchases.
• You can invest in gold mutual funds via the systematic investment plan (SIP) route. The SIP mode of investment does not exist for gold ETFs.

Gold prices do not fluctuate as rampantly as equity investments. The price of gold remains more or less stable within a range barring short bursts of price rise owing to macro factors. An effective hedge against inflation, many people invest in gold not only for its shine but also for its investment value. Many investment managers opine how you must allocate at least 10-15 per cent of your investments in gold. However, the mode of investing in gold varies and depends on your ease, convenience and how you factor in liquidity in your investments.

Gold ETFs vs Gold Mutual Funds