Gold Mutual Funds vs Gold ETFs: Which Should You Choose?

29 Mar, 2025

4 mins read

Gold has long been a preferred investment asset, offering a hedge against inflation and economic instability. As the preferences have changed towards holding financial assets, investors now have the option of choosing between Gold Mutual Funds and Gold ETFs to gain exposure to gold without physically holding it. But which is the better option? This article explores the difference between Gold ETFs and Gold Mutual Funds, their advantages and disadvantages, and how to decide the right choice for your investment goals.

What Are Gold Mutual Funds?

Gold Mutual Funds are open-ended funds that invest primarily in Gold ETFs or other gold-related assets. These funds do not require a Demat account, making them accessible to a broader range of investors. They can be bought and sold through fund houses and allow investments via Systematic Investment Plans (SIPs), enabling investors to contribute small amounts at regular intervals.

What Are Gold ETFs?

Gold Exchange-Traded Funds (ETFs) are financial instruments that track the price of gold and are traded on stock exchanges like equity shares. These ETFs invest in gold bullion or gold futures contracts. They provide real-time liquidity, allowing investors to buy and sell units during market hours. Each unit of a Gold ETF typically represents one gram of gold, making them a convenient way to invest in gold without holding it physically. Unlike Gold Mutual Funds, Gold ETFs require a Demat and trading account.

Difference between Gold ETF and Gold Mutual Fund

Feature	Gold Mutual Funds	Gold ETFs
Investment Mode	Invests in Gold ETFs or gold-related assets	Directly tracks gold prices
Demat Account Needed	No	Yes
Liquidity	Redeemed at NAV value at the end of the day	Traded in real-time on exchanges
Investment Method	SIPs and lump sum	Lump sum only
Expense Ratio	0.6% - 1.2%	0.5% - 1%
Entry/Exit Loads	May have exit loads	No entry/exit loads
Trading Time	Based on NAV (end of day)	Market hours (real-time)

Advantages of Gold Mutual Funds

No Demat Account Required: Investors can buy and sell units through mutual fund houses without needing a trading account.
SIP Facility Available: Allows investors to start with small amounts and invest systematically over time.
Professionally Managed: Managed by fund managers who allocate assets strategically to optimize returns.
Ideal for Long-Term Investors: Less volatility compared to Gold ETFs since mutual funds are not subject to market fluctuations during trading hours.

Gold ETF Advantages

Real-Time Liquidity: Investors can trade Gold ETFs like stocks, allowing quick entry and exit.
Lower Expense Ratios: Advantages of Gold ETFs include lower management costs compared to mutual funds.
No Exit Loads: Unlike some Gold Mutual Funds, Gold ETFs do not charge penalties for early redemption as they can be sold on the stock exchange at anytime during the market hours..
Better Transparency: Gold ETFs track live gold prices, ensuring real-time valuation of investments.

Disadvantages of Gold Mutual Funds

Higher Expense Ratios: Managing a mutual fund incurs higher costs compared to ETFs.
Delayed Liquidity: Redemption happens at end-of-day NAV, not instantly like ETFs.
Possible Exit Loads: Some funds may charge exit fees if withdrawn before a specified period.

Disadvantages of Gold ETFs

Demat Account Requirement: Investors must have a Demat and trading account, increasing the overall cost.
No SIP Option: Gold ETFs require lump sum investments, which may not be suitable for small or regular investors.
Brokerage Fees: Buying and selling on stock exchanges may incur brokerage and transaction fees.

Which Is Better: Gold ETFs or Gold Mutual Funds?

The choice between Gold ETFs and Gold Mutual Funds depends on your investment goals:

Choose Gold Mutual Funds if:

You prefer systematic investments via SIPs.
You don’t have a Demat account and want a simpler investment process.
You seek professional fund management.

Choose Gold ETFs if:

You want real-time trading flexibility.
You prefer lower expense ratios and transparent pricing.
You already have a Demat account and are comfortable with stock trading.

Conclusion

So, which is better - gold ETFs or gold mutual fund? Ultimately, both investment options provide exposure to gold investment options in India, but the best choice depends on your financial strategy, liquidity needs, and risk tolerance.

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Are gold ETFs better than gold mutual funds?

Gold ETFs are better for investors looking for real-time trading, lower expense ratios, and direct exposure to gold prices. However, Gold Mutual Funds are more suitable for those who prefer SIP investments and do not have a Demat account.

What are the tax benefits of gold mutual funds vs ETFs?

Gold ETFs and Gold Mutual Funds are both subject to capital gains tax on gains made. However, Gold ETFs are taxed as equity assets, with long-term capital gains taxed at 12.5% without indexation when held for more than a year. Gold Mutual Funds follow the same tax treatment, but if they invest in a fund-of-funds, they may be subject to debt fund taxation rules.

How many Gold ETFs are equal to 1 gram of gold?

Most Gold ETFs in India are designed such that one unit of Gold ETF equals one gram of gold. However, this can vary slightly depending on the ETF provider and fund structure.

Which is better - Gold ETFs or Gold Mutual Funds?

The choice between Gold ETFs and Gold Mutual Funds depends on your investment needs. Gold ETFs are better for those who want lower costs, real-time trading, and better transparency, while Gold Mutual Funds suit investors who prefer SIPs, professional management, and do not have a Demat account.