What is the difference between Gold ETFs and Gold funds?

Srikant Bhat, Mangalore

The fundamental difference lies in the manner in which the investments are carried out in gold. For instance, Gold ETFs invest directly in physical gold which means the buying and selling price of all the gold ETFs is identical irrespective of which fund house offers it. The returns generated by gold ETFs at any given point of time are also similar though there will be a minuscule difference between the schemes because of their different expense ratios. Moreover, you need to have a demat account when investing in gold ETFs.
In contrast, the gold mutual funds is a variant of the gold ETF with conveniences- you don't need a demat account to invest in them. The gold fund is passively managed which invests in a gold ETF floated by the same asset management company. The flipside of the convenience is the exit load that one pays when investing in such funds unlike the ETF, where no such loads exist. The cost of convenience that one pays when investing in a gold fund works out to what one would pay as the annual maintenance charges for a demat account, delivery brokerages charges, transaction charges incurred for investing through the dematerialised mode.

olmdesk@outlookindia.com