InvestorQ : What is the difference between a gold fund and a gold ETF?
Rohan Bhadani made post

What is the difference between a gold fund and a gold ETF?

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3 years ago
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Indians’ love for gold knows no bounds. We’ve all grown up to believe in the value of gold as a safe investment option and most of us have been taught to buy gold on auspicious occasions such as Diwali, Akshaya Tritiya, Dhanteras, etc. But with time, the form of investment has changed.
Increasingly, people are opting for investing in gold electronically via gold funds and gold exchange traded funds (ETFs) as it is safer, provides better liquidity and simplifies the process of buying gold. 
Gold ETFs: Funds that invest in gold with 99.5% purity (bought from RBI-approved banks) managed by fund managers who track daily gold prices and trade physical gold to make profits. Gold ETF units are traded on stock exchanges and offer high liquidity for buyers and sellers. Retail investors, such as you and me, need to have a demat account to buy and sell gold ETFs. 
Gold funds: These are mutual funds that mainly invest in gold ETFs, gold bullion or gold-producing companies. You don’t need a demat account to invest in a gold fund.
 
Difference between gold fund and gold ETFs: 
- Mode of investment: You can buy a gold ETF from a stock exchange if you have a demat account. However, you can buy a gold fund from a mutual fund company or asset management company and that too without a demat account.
- Price: While gold ETFs enjoy transparent pricing based on international gold prices, the price or net asset value (NAV) of gold funds are based on gold prices as well as the prices of the other assets that the fund holds.
- Transaction cost: Gold ETFs do not attract any exit load while gold funds generally have an exit load of one year.
- SIP route of investment: As gold fund is primarily a mutual fund, it allows you to invest via Systematic Investment Plan (SIP), but ETFs do not allow SIP investments.
- Liquidity: Gold ETFs are traded in the market and don’t have any exit loads, hence they are more liquid than gold funds.
- Minimum investment: Gold funds allow a minimum investment of Rs. 1000, whereas gold ETFs require a minimum investment amount worth 1 gm of gold which is close to Rs. 3154 at current rates.
- Expense: The management expense of gold funds is higher than that of gold ETFs as its expense include the expense of gold ETF in addition to the expenses of other gold investments. 
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