Why Gold Mutual Funds Are Better Than Physical Gold and Gold ETFs
Gold has always been a symbol of wealth and security in India. From festivals to weddings, it holds emotional and financial importance. But as investing evolves, the way Indians invest in gold is also changing.
While physical gold remains traditional and Gold ETFs attract market-savvy investors, Gold Mutual Funds (also called Gold ETF Fund of Funds) are fast emerging as the most convenient and efficient way to invest in gold — without the hassles of storage, Demat accounts, or liquidity concerns.
Understanding the Options
| Investment Type | Mode of Holding | Minimum Investment | Key Requirements |
|---|---|---|---|
| Physical Gold | Jewellery, Coins, Bars | High (usually grams) | Safe storage, purity checks |
| Gold ETF | Electronic (Stock Exchange) | 1 unit (≈1 gram) | Demat & Trading Account |
| Gold Mutual Fund (FoF) | Mutual Fund (via AMC) | As low as ₹500 | Regular mutual fund account |
Why Gold Mutual Funds Stand Out
1. No Demat or Trading Account Required
Unlike Gold ETFs, which require both a Demat and a trading account, Gold Mutual Funds can be purchased like any regular mutual fund. This makes them more accessible to small investors or those new to financial markets.
2. Avoids Price and NAV Mismatch
Gold ETFs trade on stock exchanges, and their market price may differ from the actual value of gold or ETF NAV due to supply-demand imbalances.
Gold Mutual Funds, however, invest directly in the underlying Gold ETF and are priced daily based on NAV — ensuring fair value without price distortions.
3. No Slippage or Intraday Volatility
ETF investors often face slippage — a difference between the expected price and the executed price — especially in thinly traded ETFs. Gold Mutual Funds eliminate this risk since they are bought and sold at the day’s NAV.
4. Easy SIP Investment
Gold Mutual Funds allow you to invest through Systematic Investment Plans (SIPs) starting as low as ₹500 per month.
This brings the benefit of rupee cost averaging to gold investment — something not possible with ETFs or physical purchases.
5. Professional Management and Transparency
Managed by experienced fund houses, Gold Mutual Funds follow the same SEBI guidelines on transparency and daily valuation as other mutual funds.
You can track performance, portfolio, and returns easily via AMC websites or platforms like AMFI.
6. No Storage or Purity Issues
With Gold Mutual Funds, you don’t need to worry about storage, theft, or purity — issues common with physical gold. The gold is stored securely in professional vaults.
Where Gold ETFs Fall Short
| Disadvantage | Description |
|---|---|
| Demat & Trading Needed | Additional cost and account setup required. |
| Price–NAV Mismatch | Market price can deviate from actual NAV. |
| Low Liquidity | Some ETFs trade infrequently, causing wider bid-ask spreads. |
| Slippage Costs | Price difference between buy/sell orders reduces returns. |
| Brokerage & Transaction Charges | Investors incur extra costs when buying/selling. |
Key Takeaways
- Gold Mutual Funds offer a simpler, more liquid, and cost-efficient way to invest in gold.
- No Demat account, no slippage, no price mismatch.
- Ideal for SIP investors seeking portfolio diversification.
- Backed by professional fund management and daily NAV transparency.
- Above points hold good for Silver too. Silver Mutual Funds are better than Physical Silver or Silver ETFs.
Looking to add gold to your investment portfolio — the smarter way?
Explore Gold Mutual Funds on CapitaGrow and start your SIP today.
