Keeping gold in its physical form at home is fraught with risks. Unlike physical gold, owning gold in the form of an ETF (exchange-traded fund) is much more convenient. Gold ETFs are passively managed and reflect current gold prices without distortion, unlike physical gold prices, which vary across India depending on location and the dynamics of supply and demand. In addition, gold ETFs cost less than buying or selling physical gold.
Gold ETFs track the local price of gold and double its performance. You can use the gold ETF to invest in a physical gold location. Real investments in gold can be time-consuming and risky, and gold ETFs allow you to hold yellow metals without having to physically own them. You don't need a demo account to invest in gold mutual funds, but you do need a demo account for gold ETFs.
Gold exchange-traded funds (ETFs) invest in gold with a purity of 99.50%, while gold funds invest in gold ETFs. Both are safe investment options where investors don't have to worry about theft or storage in the case of physical gold. A Demat account is mandatory to invest in gold ETFs, while you can invest in gold mutual funds even without a Demat account. Gold ETFs and gold funds have advantages and disadvantages, but ETFs control gold prices and gold funds invest in gold mining companies.
Investing in gold funds is beneficial during uncertainty in the stock markets because it acts as a hedge for the investment portfolio. When other asset classes don't offer satisfactory returns, the returns offered by gold can balance the portfolio. Due to the low cost and investment flexibility (real-time trading), ETFs are more convenient and offer good returns. However, in the case of gold ETFs, the minimum investment amount would be equivalent to the current price of 1 gram of gold.
Investors can also choose a third option where they can safely and securely invest in digital gold and buy gold in denominations as low as 500 rupees with Motilal Oswal. In addition, gold funds are subject to an exit charge if they are redeemed within one year, which does not apply to gold ETFs. In addition, investors who are unable to invest a high value in the purchase of physical gold can invest through gold funds. Keep in mind that the liquidity offered by gold ETFs can vary from AMC (asset management firm) to AMC.
Chintan Haria, director of product development strategy %26 at ICICI Prudential Mutual Funds, explains how gold ETFs differ from gold mutual funds.