Differences between Gold ETFs and Gold Savings funds in India

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Gold market in India, is flooded with Gold ETFs and Gold funds. Common investors are confused a lot between the two. This page is trying to clear out the differences between Gold ETFs and Gold savings funds. Gold ETFs has been in the Indian markets for at least 3 to 4 years. Gold funds or Gold Savings fund introduce into the markets recently. Although the idea behind both the scheme is same, the route of investment varies. Both the scheme's motto is to get the benefit of price appreciation of Gold. Or in other words, to give the investors, the return that the Gold is making.

 

Both the funds are run by leading mutual fund houses. New and new entrants are coming with new schemes in the respective category. Now let us pinpoint the minute details of Gold ETFs and Gold funds.

 

Comparison of Gold ETF and Gold funds

 

Sl No.	Attributes	Gold ETF	Gold Funds ( Gold Savings Funds)
1	What is?	Gold ETFs are units representing Gold in physical form and are available to the investor either as paper form or as Dematerialized form.	Gold funds are units representing the units of respective mutual fund's Gold ETFs
2	Where is the investor's money going?	Investor's money is used to buy the physical Gold. 0% to 5% may be invested in money market instruments	Investor's money is used to buy the units of Gold ETF of the mutual fund house which offers the Gold fund.
3	Asset allocation	95 to 100% in Gold and 0 to 5 % in money market instruments.	95 to 100% in Gold ETFs and 0 to 5% in money market instruments. There may be some portion to keep the liquidity a t the mutual fund level.
4	Who can invest?	Investors who have demat account can invest in the Gold ETF.	All investors, irrespective of demat account can buy the Gold funds. No need to open the demat account to buy the units of Gold funds. If the investor want to keep the units in demat form, he can still do it, if he posses Demat account.
5	How to buy?	From the stock exchanges	From the dealers of respective mutual fund houses
6	Entry load	Nil	Nil
7	Exit load	Nil	1% to 2.5 % depending upon the time of sale of Gold fund units.
8	How to sell?	Through stock exchanges	Go the dealers or authorized centers of respective mutual fund house and sell the units
9	Expenses	0.5% to 1.5%	1.25% to 2 %. Higher than Gold ETFs. Investors has to bear the expenses of underlying Gold ETF also.
10	Tracking error	Tracking error is related with physical Gold	Tracking error is with Gold ETFs of the parent company
11	Tax implications	After One year of holding, it is long term capital gain tax	After One year of holding, it is long term capital gain tax
12	Bench mark	With the physical Gold	With the Gold ETFs
13	SIP's available	Choice is limited	Wide choices to purchase the units as low as Rs.100. Varieties of SIP's or EMI options is the one merit of Gold fund with Gold ETF.
14	Competition	11 fund houses run the Gold ETFs	4 fund houses are available
15	Liquidity risks	Liquidity risks exists	Liquidity risks exists
16	Trigger facility, add on facility	No	Yes
17	Which is better?	Gold ETF is better	Better for those who don't have demat account.

 

So considering the above factors, Gold ETFs seems to be a better for choice out of two for the investors. For those who don't possess Demat account Gold funds are the only available option for investing in Gold. When considering the flexibility point of view Gold funds scores better. You have lot of SIP choices which can be selected according to your budget and there are trigger facility to buy and sell, add on facility to mop up your investments in Gold funds. But inexpenses point of view, Gold ets are better options. Those investors who have demat account, go for Gold ETFs and those who don't want to open demat account can go for Gold funds.

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