Gold Investing – ETF vs Mutual Fund: Comprehensive 101 Guide

Rahul Verma
May 17, 2023
etf vs mutual fund
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With inflation on the rise, investors are searching for areas of safety and security. Many investors are looking towards gold as a haven. It’s an easy way to protect assets when the market takes a downturn, and it offers protection. To provide some diversification in your portfolio, consider investing in gold. There are several ways to invest in gold.

The two most common are through a gold ETF or buying shares of a gold mutual fund. Each option of gold ETF vs mutual fund has its benefits and risks. Gold ETFs and Gold Mutual Funds. But which is the right one for you? It’s a common question among investors looking for an alternative asset to boost their portfolio.

What’s the difference?

Gold ETFs are commodity-based mutual funds that invest in gold as the principal asset. Gold ETFs are passive investment instruments that aim to track the domestic gold price. It invests either in physical gold or stocks of companies engaged in gold mining or refining.

On the other hand, Gold Mutual Fund or Gold Fund is an open-ended Mutual Fund that invests in units of Gold ETFs. The aim of this fund is the same as Gold ETF, i.e., to invest in gold of 99.5% purity and generate income. Each gold fund has a fund manager who manages the buying and selling of assets on the basis of the fund’s investment objective. 

Pros and Cons of ETF


  • Low Management Expense Ratio (MER) – Typically, gold ETFs have an MER of 0.25% or less, while some mutual funds charge 1% or more per year in management fees.
  • Liquidity – Since they trade like stocks, you can buy or sell them immediately. You don’t have to wait until your investment reaches a particular dollar value before redeeming it for cash.
  • Diversification – Because gold ETFs track an underlying index (such as GLD), they aren’t subject to individual managers’ investment styles or preferences. This makes them particularly valuable when investing in retirement accounts (where manager risk is not an option).



Gold ETFs are popular in India, but gold mutual funds have many advantages.

  • Gold ETFs are not as well diversified as a gold mutual fund portfolio. A mutual fund will invest only in physical bullion and offer a more diversified portfolio of gold and silver than an ETF does.
  • Mutual funds may have lower expenses than ETFs because they don’t need to pay brokerage commissions on transactions made by investors who buy or sell their shares on exchanges around the world (whereas those fees cost money for traders of stocks).
  • Mutual funds provide more transparency about how much money each shareholder owns in terms of physical bullion holdings because they report this information regularly with their financial statements filed with regulators like SEBI (Securities Exchange Board India).


Gold ETF vs Mutual Funds

Investment Method And Amount

While you can invest in a Gold fund through SIP in multiples starting from as low as Rs 500 that fetch you units of the gold fund basis the prevailing NAV of that day; when investing in ETFs, you have to buy units of ETFs and minimum you need to buy is 1 unit. In the case of gold ETFs, one unit is equivalent to 1 gram of gold. So when you buy 1 unit of gold ETF, you are actually buying 1 gram of gold. Due to this, the minimum investment amount needed is higher in ETFs compared to Gold Mutual Funds.

Mode Of Holding

Since Gold ETFs are traded on the stock exchange in the manner of stocks, the buying and selling transactions can only be done through a broker and a Demat account. When you buy or sell the ETFs, they get debited/credited to your Demat account. In contrast, there is no such requirement for investing in a Gold Fund. 

You can invest in a gold mutual fund via a SIP or through a lump sum, without a Demat account. The transaction takes place at the Net Asset Value (NAV) of that particular day.

Costs Involved

The key costs for gold ETFs include Demat charges, Expense Ratio, and brokerage charges taking the annual cost to approximately 0.5-1%. Gold mutual funds are close at 0.6-1.2% annually, including the gold ETF charges mentioned above and 0.1-0.2% charges for managing the gold. There are no exit loads applicable on Gold ETFs, whereas, for gold funds, you may have to pay an exit load in the range of 1-2% on redemption within a year.  The difference in the costs involved for both is not very high, hence, it boils down to which method of investment you find more convenient.


ETFs in India are largely illiquid because since they are being traded on stock exchanges, there needs to be an optimum number of buyers willing to buy when you want to liquidate your holdings. And given that the ETF market in itself is small in India, gold ETFs become relatively less liquid than gold mutual funds which can be purchased/redeemed quite easily.


Although Gold ETF vs Fund India is a viable investment option, you should understand their differences before making any decisions. Gold may be a solid addition to your investment portfolio.

Still, the type of gold product you buy shouldn’t be based solely on the numbers—your goals, timeline, and preferences should all be factored into your decision.

The gold ETFs in India currently have a better performance, but the gold mutual funds are still the best option for most investors.

Risk Assessment Test