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One of the best investment options for long term, is investment in Gold. Thought there are various ways to invest in gold, investors are looking to invest in gold mutual funds and gold ETF’s. Which one is better investment option in case one is looking for investment in gold?
Why to invest in gold?
As indicated in several articles earlier, investment in gold has provided excellent returns of 22%+ p.a. over the last few years and which is safest and best investment option. Investors are looking to make this part of their investment portfolio.
What are gold ETF’s?
Gold ETF’s are exchange traded funds which invest in gold. The Gold ETF unit denotes 1 gram of gold. At current rate of gold, a gold ETF would value at Rs 3,100 per unit (less any administration expense). Gold ETF’s company purchases the gold and they would be stored. The Gold ETF’s then issue various denominations and they are traded in stock exchanges like any other stock.
What are gold mutual funds?
Gold mutual fund mainly invests in securities that are isused by the companies who invest in mining and distribution of gold. The NAV of the unit is determined like any other mutual fund. However gold mutual funds are relatively new products issued more than an year ago.
Gold mutual funds Vs Gold ETF’s – which is better investment option?
Investment: Gold ETF’s purchase gold from international market, hence the price of the gold ETF’s are transparent and they are listed in the stock exchanges through the day during trading hours. On the other hand, Gold mutual funds invest in securities of companies which are in mining and exploration of gold, hence there can be slight variance in the gold prices. Investment in Gold ETF’s are like direct investment in gold, whereas investment in gold mutual funds are indirect investment in gold through investment in equity of the companies.
Benefitting from Systematic Investment Plan: Investment in gold mutual funds can be done through Systematic Investment Plan. With this option the rupee cost averaging can be done. However such benefit is not available in gold ETF to invest a fixed amount of money every month.
Demat account: Investment in Gold ETF require a demat account to be opened. Investment in Gold mutual funds is like any other mutual funds where you do not require a demat account
Liquidity: In case there is increase of Gold prices, Gold ETF prices increase and you can sell them in stock exchanges with the transaction charges. However in Gold mutual funds, if you want to sell the fund units, the NAV of previous day is taken as basis wherein you cannot en-cash the price fluctuations for the day.
Charges: If you invest in Gold ETF’s you need to pay the brokerage/transaction charge and demat account annual charges. If you are already doing share trading, you need not pay any additional demat charges and it may not impact you. If you invest in Gold ETF’s for longer term, the transaction charges would be minor and can be ignored. On the other hand, investment in gold mutual funds also attract transaction charges. On top of it, it attracts 1% exit load if you are exiting within 1 year. If you invest in gold mutual funds for longer term, you would get benefited.
Administrative expenses: In gold ETF’s, there is direct investment in gold, hence no additional expensese would be required for research or maintenance of big team by the mutual fund company. Hence the administrative expenses would be low and are generally around 1% of the total investment amount which the asset management company would reduce from the NAV of the mutual fund. On the other hand Gold mutual funds need to do research and invest in companies who are in mining and exploration of gold, hence the expenses would be on the higher side. Generally such expenses are around 1.5% of the investment amount.
Some of the Gold ETF’s in India
Some of the gold mutual funds in India
Conclusion: Investment in gold mutual funds and gold ETF’s have their pros and cons. Take a decision based on what suits you better and invest in them. In my opinion, since gold mutual fund are relatively new (which started an year back), and if you look at the performance, gold ETF's have been performing well considering one year performance period. I want to invest for 1 gram and in multiple of 1 gram of gold every month. In such situtaion, I would rank Gold ETF as better one rathern than gold mutual fund.
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Gold Mutual funds and Gold ETF’s – Which is the better investment option?
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