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Difference Between Gold ETFs and Gold Mutual Funds

Gold ETFs vs Gold Mutual Funds

Difference Between Gold ETFs and Gold Mutual Funds

Gold and Indians!!!! Both hold a deep relation to each other from a very ancient time. Initially, gold which was used majorly for human accessories only now is used as a major part of diversifying individual portfolios.

With high emotional values, gold also holds high monetary value. Our advanced society has now availed the physical gold in digital form as well. Gold ETFs and Gold Mutual Funds are two major examples of it.


Gold ETFs

The gold exchange-traded fund (ETF) follows the domestic physical gold price.  Based on gold prices that invest in gold bullion Gold ETFs are passive investment instruments.

In a nutshell, Gold ETFs are securities that represent actual gold in the form of paper or another form that has had the physical metal removed from it.

Features of Gold ETFs

  • Traded on stock exchanges
  • Designed to track the price of gold
  • Buying and selling of Gold ETFs can be done throughout the whole trading day
  • Hold physical gold or derivatives contracts backed by physical gold
  • Low expense ratios
  • Passively managed
  • Greater flexibility in terms of trading


Gold Mutual Funds

Gold mutual funds are mutual funds that either directly or indirectly invest in gold reserves. Typically, investments are made in gold distribution and production syndicates, physical gold, and the stocks of mining companies. It is a fantastic method to invest in an asset without actually buying it in physical form.

Features of Gold Mutual Funds 

  • Actively managed by a fund manager
  • Invest in a variety of gold-related assets such as mining stocks, bullion, and derivatives
  • At the end of each trading day, mutual funds are priced
  • Can only be bought or sold at that time
  • Potential for higher returns
  • Greater diversification beyond just physical gold


Comparison Between Gold ETFs and Gold Mutual Funds 


Gold ETFs and Gold Mutual Funds, both are ways to invest in digital gold but varies from each other in the following ways:

Basis of Difference

Gold ETFs

Gold Mutual Funds


Gold ETFs purchase 99.5% pure physical gold from banks with RBI approval

Gold Mutual Funds are open-ended mutual fund plans that invest in gold ETFs. 


Investment mode 

Only Lump Sump investments 

SIP and Lump Sump investments 

Investment Amount 

As per current market pricing, the minimum investment can be of 1 gram gold

Rs. 1000 is the minimum investment (as per monthly SIP)


Highly liquid 

Comparatively less liquid 

Management Cost

Comparatively lower 


Demat Account

Demat Account is required 

A Demat account is not required 


Gold ETFs can be converted into physical gold 

No conversion, investments remain as funds only

Exit Load

No exit load charges 

Charged if redeemed before 1 year


More Flexible

Less Flexible

Expense ratio

Comparatively Less



What are the Similarities Between Gold ETFs and Gold Mutual Funds?

Now we know that Gold ETFs are different from Gold Mutual Funds in many ways but they have a few things in common as well. Here are the various similarities of Gold ETFs and Gold Mutual Funds:


An Alternative to Physical Gold

You can invest in gold using a gold ETF or gold fund, both of which eliminate the need to keep real gold on hand and the fear of theft and purity problems.

Both investment alternatives aggregate investor funds and invest the resulting corpus in assets linked to gold. 


Diversifies your Portfolio

Investors have an easy option to diversify their portfolios beyond equity and debt thanks to gold ETFs and gold funds.

The gold and equity markets frequently follow a see-saw pattern, which means that when one is low, the other is high, and vice versa, as has been noticed in recent times. This gives your portfolio suitable hedging.

For Example, the gold markets often perform well when the equities markets are weak, and vice versa. This aids in portfolio balance because if equities mutual funds are underperforming, gold mutual funds or exchange-traded funds (ETFs) may outperform them, saving the entire portfolio from underperformance.


Net Asset Value 

The Net Asset Value (NAV) is determined at the conclusion of each business day for both Gold ETFs and Gold Funds.

The NAV is affected by changes in the value of the underlying assets as well as by changes in gold prices.

Having said that, gold ETFs are exchanged on the stock exchange at the market price, which may or may not be the same as the NAV of the day, whereas gold funds are bought and sold in accordance with the NAV of the day. 



Both gold ETFs and gold mutual funds offer investors the opportunity to gain exposure to the price of gold. The choice between the two ultimately depends on an investor's individual goals and preferences.

Those looking for low-cost, flexible trading may prefer gold ETFs, while those seeking potentially higher returns and greater diversification may opt for gold mutual funds.


Frequently Asked Questions 


1. Which is a better gold mutual fund or a gold ETF?

Ans: Gold Mutual Funds and Gold ETFs both hold their own benefits and risk, deciding which one is better depends on one's investment objectives, tolerance for volatility, and risk appetite. 


2. Are gold ETFs tax-free?

Ans: Gold ETFs don’t require any entry or exit load charges and also don’t attracts any GST, wealth tax, or security transaction tax.


3. How to buy 1 gram of gold in ETF?

Ans: To buy 1 gram of gold in ETF you need to open a demat account after that you can access the purchasing of gold units via stock exchanges. You can open your demat account easily with TradingBells.


4. Which mutual fund is best for 2023?

Ans: As per the last 5 year returns, the following are the best mutual funds for 2023:-

  1. Axis Gold Fund
  2. SBI Gold Fund
  3. HDFC Gold Fund 
  4. Kotak Gold Fund
  5. Nippon India Gold Savings Fund


5. Is it smart to invest in gold?

Ans: Gold and other precious metals are considered a great and smart way to survive inflation and diversify your investment portfolios. Gold preserves its value even when the market fluctuates.




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