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Summary
For many centuries, gold has been the one precious metal to provide the most financial benefit.
As we see today, many who continue to support gold also insist that gold is the original marker for wealth as opposed to the paper currency we instill in our daily lives.
It is obvious that the market's gold is traded on is different in comparison to the markets for equity.
Most of the time, when the equity markets plummet, it has a direct effect on the price of gold.
This is why many financial portfolios include gold as hedge assets.
Currently, gold can be invested in more ways than one.
A few examples include gold itself, as a mutual fund, or as an ETF.
Characteristics of Gold ETFs
There are a lot of risks involved when you have physical gold in your possession.
In comparison, a gold ETF has a lot of conveniences involved.
A gold ETF is maintained readily and displays the price of gold with no fluctuation.
This is unlike physical gold where the price varies continuously, which is dependent upon where the gold is bought and gold's overall supply and demand.
Not only that, but the expenses associated with a gold ETF are significantly lower than gold.
All gold ETFs get listed and sold through the stock exchange.
So when fund managers come into play, they are only useful for when bullion gold is bought and deposited with a chosen custodian.
Gold ETFs are also equal to gold's return and price.
The one distinction between physical gold and an ETF return is the tracking and ratio of expense.
When the tracking is low, then the customer's return will be greater.
When it comes to investing, a gold ETF is considered a suitable asset to invest for those considering it an investment and not just as an accessory.
Characteristics of Gold Mutual Funds
As an investor, you may have an inconvenient time trying to buy as many gold ETFs as you want.
However, in order to be able to, a gold mutual fund option was created.
With a gold mutual fund, an investor is able to invest in the mutual fund that makes gold ETF purchases.
The purpose of a gold mutual fund is to monitor the unit of gold ETFs value, which are in the equal value for gold in the physical form.
The way these mutual funds make money is determined by the asset's overall performance.
So if the gold ETFs net asset value changes, then the returns on the gold mutual fund will change also.
Main Differences Between a Gold ETF and Gold Mutual Fund
The Amount and Method of Investment
Although obtaining gold mutual funds through a systematic investment plan is possible, which allows a low cost for each, a gold ETF investment needs to be bought by the unit at a minimum of 1 unit.
One unit of gold ETF is considered to be 1 gram of gold.
As you buy a gold ETF unit, you will be receiving a gram of gold.
Because of this, the amount of needed investment is much more for a gold ETF than it is for a gold mutual fund.
Investment Method
A gold ETF is invested in stock markets the same way a stock is traded.
As such, they can only be bought and sold through a dematerialized account and broker.
When an ETF is bought or traded, your dematerialized account is credited or debited.
On the other hand, the gold mutual fund does not need the same investment method.
Using a systematic investment plan is a great way to invest in a gold mutual fund.
You can also pay a single sum and no need for a special account.
When the transaction is completed, it receives the day's net asset value.
Overall Cost
The costs involved with a gold ETF are comprised of charges involving brokerage fees, dematerialized fees, and an expense ratio, which makes the cost no more than 1%.
With gold mutual funds, their cost is close to at least 1.2%.
Although these are an annual percent, they include all charges associated with a gold ETF as well as a managing charge of at least 0.1%.
A gold ETF does not include any exit loads like a gold mutual fund has, which you may need to pay when you decide to cash out your fund during the year.
The cost difference for both investment types is not much, so this just makes it your decision on which you prefer to obtain.
Amount of Liquid Assets
All gold ETFs are considered illiquid due to their difficult conversion into cash, which stems from them being market traded. This means a certain amount of buyers are needed in order for any asset you have to become liquid. Having a liquid gold ETF is also determined by the size of the market it is traded on, which can also affect its liquidity, unlike a gold mutual fund, which is bought and traded effortlessly.
Best Gold Mutual Funds & Gold ETFs on the Market
Best Gold Mutual Funds
- Axis Gold Fund
- SBI Gold Fund
- HDFC Gold Fund
- Kotak Gold Fund
- Invesco India Gold Fund
Best Gold ETFs
- SPDR Gold Shares
- iShares Gold Trust
- SPDR Gold MiniShares Trust
- VanEck Merk Gold Trust
- GraniteShares Gold Trust
FAQs
Gold ETF trading is the same as trading in equity because they both are traded on the stock market. Plus, the ETFs can also be compared among stocks that are internationally based. because of this, gold ETF prices will always fluctuate as the market changes. This is the same as we see with stocks.
When you invest in gold ETFs, nearly 100% of it is in gold itself. This means the little bit there is will be in the form of an unsecured loan certificate. So these will not yield any dividends. Nonetheless, the ability to buy and trade a gold ETF based on a volatile market is able to yield some profit.
A less amount of investment is needed for the gold ETF to be traded on markets and are able to yield a nice return. It is for this reason that gold ETFs are a nice option to invest in. Besides that, by making an investment in gold ETFs, your investment portfolio will improve significantly.
An advantage all investors receive with gold mutual funds is portfolio diversification with no fees to pay to an asset manager. Another advantage is having no worry about inflation because you will be investing in gold but not having physical gold. Your ¨gold¨ is tradable everywhere, so the gold investment will always be protected.
A fund manager is needed in order to own and invest in all gold ETFs and are obtained through an Asset Management Company. In addition, Demat accounts need to be opened prior to buying and trading any gold ETF. So, make sure that the fund manager you work with is from the AssetManagement Company that is offering the gold