Understanding Gold ETFs and Gold Mutual Funds: Which is Better? - IPO Spy

Gold has always been a symbol of wealth and security in India. For centuries, Indians have invested in gold jewelry, coins, and bars as a hedge against inflation and economic uncertainty. However, in recent years, modern investment options like Gold ETFs (Exchange-Traded Funds) and Gold Mutual Funds have gained popularity. These instruments offer a more convenient and efficient way to invest in gold without the hassles of storage or purity concerns.

But what are Gold ETFs and Gold Mutual Funds, and how do they differ? Which one is better for Indian investors in 2025 and beyond? This blog will explore these questions in detail, helping you make an informed decision. Whether you’re a seasoned investor or a beginner, this guide will provide clarity on what Gold ETFs are, what Gold Mutual Funds in India entail, and how to choose the right option for your portfolio.

What are Gold ETFs?

Gold ETFs are investment instruments that track the price of gold and trade on stock exchanges, just like shares. Each unit of a Gold ETF represents a specific quantity of physical gold, typically 1 gram. When you invest in a Gold ETF, you own a share of the underlying gold held by the fund.

Key Features of Gold ETFs:

Liquidity: Gold ETFs can be bought and sold on stock exchanges during market hours.
Transparency: The price of Gold ETFs closely mirrors the real-time price of gold.
No Storage Hassles: Unlike physical gold, Gold ETFs don’t require safekeeping or insurance.
Low Expense Ratio: Gold ETFs generally have lower management fees compared to Gold Mutual Funds.

For example, popular Gold ETFs in India include Nippon India Gold ETF and HDFC Gold ETF, both of which are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

What are Gold Mutual Funds?

Gold Mutual Funds are mutual fund schemes that invest primarily in Gold ETFs or other gold-related instruments. Unlike Gold ETFs, which trade on stock exchanges, Gold Mutual Funds are bought and sold through Asset Management Companies (AMCs) at the fund’s Net Asset Value (NAV).

Key Features of Gold Mutual Funds:

Ease of Investment: You can invest in Gold Mutual Funds through SIPs (Systematic Investment Plans) or lump-sum payments.
Professional Management: Fund managers handle the investment decisions, making it suitable for beginners.
Diversification: Some Gold Mutual Funds may also invest in other assets, providing diversification.
Higher Expense Ratio: Gold Mutual Funds typically have higher fees than Gold ETFs due to active management.

For instance, SBI Gold Fund and Axis Gold Fund are popular Gold Mutual Funds in India that invest in Gold ETFs and other gold-related securities.

Gold ETFs vs. Gold Mutual Funds: Key Differences

Aspect	Gold ETFs	Gold Mutual Funds
Trading Platform	Stock exchanges	Asset Management Companies (AMCs)
Investment Mode	Requires a Demat account	No Demat account required
Expense Ratio	Lower	Higher
Liquidity	High (traded like stocks)	Moderate (redeemed through AMCs)
SIP Option	Not available	Available

Why Invest in Gold ETFs and Gold Mutual Funds?

Inflation Hedge: Gold has historically performed well during inflationary periods, preserving wealth.
Portfolio Diversification: Adding gold to your portfolio reduces risk by balancing equity and debt investments.
Liquidity: Both Gold ETFs and Gold Mutual Funds offer high liquidity compared to physical gold.
Convenience: No need to worry about storage, purity, or making charges (as with jewelry).

Why are Gold ETFs in 2025?

Looking ahead, why are Gold ETFs in 2025 likely to offer? Experts predict that Gold ETFs will continue to grow in popularity due to:

Digital Transformation: Increased adoption of digital platforms for trading and investing.
Regulatory Support: SEBI’s efforts to streamline and regulate Gold ETFs.
Global Trends: Rising demand for gold as a safe-haven asset amid economic uncertainties.

By 2025, Gold ETFs are expected to become even more accessible and user-friendly, with features like fractional ownership and lower expense ratios.

Why are Gold Mutual Funds in India?

In India, Gold Mutual Funds are gaining traction as a convenient way to invest in gold without the complexities of direct trading. These funds are particularly popular among retail investors who prefer SIPs for disciplined investing.

For example, ICICI Prudential Regular Gold Savings Fund allows investors to start a SIP with as little as ₹500 per month, making gold investment accessible to all.

How to Choose Between Gold ETFs and Gold Mutual Funds

Choosing between Gold ETFs and Gold Mutual Funds depends on your investment goals, risk tolerance, and preferences. Here’s a quick guide:

Choose Gold ETFs if:

You have a Demat account and are comfortable trading on stock exchanges.
You prefer lower expense ratios and higher liquidity.
You want to track the real-time price of gold.

Choose Gold Mutual Funds if:

You prefer a hands-off approach with professional management.
You want to invest through SIPs for disciplined wealth creation.
You don’t have a Demat account or prefer not to trade on stock exchanges.

Step-by-Step Guide to Investing in Gold ETFs

Open a Demat Account: Choose a reputable broker like Zerodha, Groww, or HDFC Securities.
Complete KYC: Submit your PAN card, Aadhaar card, and bank details for verification.
Link Your Bank Account: Ensure your bank account is linked to your trading account.
Start Trading: Buy Gold ETFs through your broker’s platform during market hours.

Step-by-Step Guide to Investing in Gold Mutual Funds

Choose a Fund: Research and select a Gold Mutual Fund, such as SBI Gold Fund or Axis Gold Fund.
Complete KYC: Submit your KYC documents to the AMC or through your broker.
Start Investing: Invest via lump-sum or SIP through the AMC’s website or a mutual fund platform like Groww or Kuvera.

Conclusion

Both Gold ETFs and Gold Mutual Funds offer unique advantages for Indian investors. While Gold ETFs are ideal for those who prefer trading and lower costs, Gold Mutual Funds are better suited for long-term investors seeking convenience and professional management.

As the investment landscape evolves, understanding what Gold ETFs are and what Gold Mutual Funds in India entail will help you make informed decisions. Whether you choose Gold ETFs or Gold Mutual Funds, adding gold to your portfolio can provide stability and growth in uncertain times.