Gold ETF vs gold savings fund: Which one is right for you?

Here are some of the major differences between gold savings fund and gold ETF.

Gold ETF vs gold savings fund Which one is right for you

Gold prices have touched new highs in India this year and all gold investments have given attractive returns. Gold as an investment has brought large inflows into gold funds and gold exchange traded funds (ETFs) in India. Gold ETFs witnessed an inflow of Rs 921 crore in July 2020, a surge of 86% from June alone. Gold funds saw an inflow worth Rs 471 crore in July 2020.

Investing in gold online is one of the most efficient ways of owning gold. This has given rise to many gold instruments in India. Gold savings fund is a mutual fund that invests in gold ETFs instead of regular ETFs and short-term funds. Gold ETFs make direct investments in gold. To do this efficiently, fund managers track the daily price of gold.

Let's look at the main differences between gold ETFs and gold savings funds:

1. Minimum investment 

Gold ETFs: Gold ETFs require a minimum investment of 1 gram of gold.

Gold Savings Funds: However, one needs to invest a minimum of Rs 1000 for 6 months in gold savings funds in the form of monthly instalments as a SIP and Rs 5000 as a lump sum, with Rs 1000 as an optional additional requirement. 

2. Entry and exit loads

Gold ETFs: Gold ETFs have neither entry loads nor exit loads. Overall, gold ETFs have lower management expenses than gold savings funds, as the latter invest in gold ETFs. Hence their expenses include Gold ETF expenses too. 

Gold Savings Funds: Gold savings funds may have an exit load up to 1 year, plus other charges towards commissions payable to the distributor and fund management charges. 

Related: A quick guide to investing in gold saving schemes under MFs 

3. Purity classification

Gold ETFs: Gold ETFs invest in physical gold of 99.5% purity.

Gold Savings Funds: Gold savings funds invest at least 90% in physical gold and the remaining in debt instruments, thereby performing in line with the actual prices of physical gold.

4. Demat account

Gold ETFs: One needs to own a demat account in order to invest in a gold ETF.

Gold Savings Funds: This is not required for investing in a gold savings fund. However, this convenience of gold savings fund comes at a slightly higher cost in the form of additional expenses.

5. Conversion to physical gold

Most gold ETFs allow investors to convert only a minimum of 1 kg of physical gold.

Related: 7 Easy steps to invest in gold for your wedding

6. Liquidity

Gold ETFs: Gold ETFs can be traded in the market anytime, as they are listed on the stock exchanges. Gold Savings Funds: Gold savings funds can be bought or sold based on the net asset value (NAV) for that day.

Gold is going to remain an inherent part of investment portfolios for decades to come. It will be bought both physically and electronically. Whether you buy it as gold ETFs or gold savings funds, gold is likely to remain a safe investment haven. Look at these 7 best online places to buy jewellery in India.

Summary:

Points of differences Gold ETF Gold Savings Fund
Minimum Investment Gold ETFs require a minimum investment of 1 gram of gold. Invest a minimum of Rs 1000 for 6 months in gold savings funds in the form of monthly instalments as a SIP and Rs 5000 as a lump sum, with Rs 1000 as an optional additional requirement.
Entry and Exit Loads Gold ETFs have neither entry loads nor exit load Gold savings funds may have an exit load up to 1 year, plus other charges towards commissions payable to the distributor and fund management charges.
Purity Classification Gold ETFs invest in physical gold of 99.5% purity NA
Demat Account Required Not Required
Conversion to Physical Gold Most gold ETFs allow investors to convert only a minimum of 1 kg of physical gold. NA
Liquidity Can be traded in the market anytime Gold savings fund can be bought or sold based on the net asset value (NAV) for that day.



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