It is a well-known fact that Indians are one of the world’s largest consumers of gold. Gold is regarded as a solid investment…
However, with the passage of time, people have adopted a more modern outlook on investing in gold. Gold is a safe investment choice and investors can invest in either a gold mutual fund or a gold exchange-traded fund.
Investment in Gold ETFs
Physical gold investment is one of the options for gold investments. A gold ETF is a kind of exchange-traded fund used as an option to replace physical gold. Gold ETFs are funds that invest in physical gold and gold-related instruments and depend on gold prices. Gold ETFs invest in gold bullion, which is the same as holding gold.
They are ideal for investors looking to use gold as an investment option rather than for personal use. As compared to physical gold investments, ETFs have lower expenses on account of their unique structure and creation process.
Gold ETFs in India ensure that your portfolio is well-balanced; as gold prices fall or rise, you can modify your asset allocation plan based on the gold ETF’s performance to minimize the risk and potential gains.
Investment in Gold Funds
Gold mutual funds are basically fund of funds schemes that invest in gold exchange-traded funds. Their underlying scheme invests in gold bullion and relies on investments directly linked to gold prices. Gold mutual fund performance is based on the returns of Gold ETFs in which it invests.
Gold MFs vs. Gold ETFs
Minimum Amount: One can invest a minimum of INR 500 as a monthly SIP while investing in Gold Funds whereas generally, one needs to invest a minimum of 1-gram gold in a Gold ETF depending on respective Scheme features.
- Investment Mode: Gold funds are available in SIPs but this is not so for Gold ETFs. Gold Mutual Funds may be purchased from mutual funds and do not require a Demat account; however, Gold ETFs are traded on the exchanges and need a Demat account.
- Transaction Cost: Gold Mutual Fund is a Fund of Fund scheme hence investors bear the recurring expenses of the scheme in addition to the expenses of the Gold ETF scheme in which Gold Mutual Fund scheme makes the investment.
- Liquidity: Units of Gold ETF can be bought and sold at any time during the market hours.
- Taxation: Both the gold fund’s taxation and the gold exchange-traded fund’s taxation implications should be looked into while deciding to invest. Gold Funds or Gold ETFs attract long-term capital gains tax rate of 20% plus a 4% cess. However short-term investors (those with a holding period of fewer than 36 months) would not be directly taxed on their profits. Instead, those earnings would be clubbed with other earnings, and taxes levied according to the relevant slabs.
Both Gold ETF and Gold funds are good investment options. However, before investing, one needs to check the performance of the ETF and gold funds.
One should also check the expenses and gold fund taxation implications on the sale of the investments.
ABOUT THE AUTHOR: QuantunMF