Gold ETF vs Gold Mutual Fund

Gold ETFs and Gold Mutual Funds both provide exposure to gold but differ in structure, costs, and management. Gold ETFs offer lower expense ratios, higher liquidity, and direct gold investment, while Gold Funds provide professional management and exposure to gold-related industries, enhancing diversification.
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3 min
27-June-2025

When it comes to investing in gold without actually holding the physical metal, two popular options stand out—Gold ETFs and Gold Mutual Funds. Both let you benefit from gold price movements without worrying about safety, storage, or purity. But how do they really differ?

Gold ETFs are traded like stocks and track the price of gold directly, while Gold Mutual Funds invest in a mix of gold ETFs and other gold-related instruments. Your choice depends on what suits your investment style—do you prefer the flexibility of real-time trading or the convenience of SIPs?

If you ae exploring ways to invest in gold without physical hassle or high entry costs, mutual funds and ETFs offer digital alternatives that are flexible and easy to access. Compare Mutual Fund Options Now!

In this article, we’ll break down the key differences between gold ETFs and gold mutual funds, including how they work, how liquid they are, what they cost, and how they're taxed. Let’s dive in so you can make an informed choice based on your financial goals and risk appetite.

What is a gold ETF?

Think of a Gold ETF (Exchange Traded Fund) as a digital version of holding gold. It’s a type of mutual fund that tracks the price of 99.5% pure gold. Each unit typically represents one gram of gold. These ETFs are passively managed and traded on stock exchanges, just like shares.

To invest in a gold ETF, you will need a Demat account, since the buying and selling happens through the stock market. That also means you can buy or sell units anytime during trading hours—offering flexibility and real-time pricing. Gold ETFs are ideal for investors who want to track gold prices closely and prefer a hands-on approach to managing their investments. ETFs may suit investors who prefer intraday flexibility and direct gold price tracking, but require a Demat setup. If you're looking for simplicity without Demat involvement, mutual funds could be a better fit.
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What is a gold mutual fund?

Gold mutual funds are a more beginner-friendly way to invest in gold—no Demat account required. These funds invest mainly in Gold ETFs, so their performance closely mirrors that of gold itself. The main difference? You can start investing through SIPs, just like with any other mutual fund.

It’s important not to confuse gold mutual funds with thematic gold funds. Gold mutual funds focus purely on gold ETFs and track gold prices. Thematic gold funds, on the other hand, invest in companies involved in gold mining or processing—so their returns depend more on the business performance than gold prices alone.

If you’re looking for a simple way to add gold to your portfolio without needing a trading account, gold mutual funds offer a practical route.

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Difference between gold ETF vs gold funds

While both gold ETFs and gold mutual funds help you invest in gold without holding it physically, they differ in keyways from how you invest to how easily you can access your money. Let’s look at how they compare on important aspects:

  • Investment method: You can start a gold mutual fund SIP with just Rs. 500. In contrast, investing in gold ETFs requires buying at least one unit, which equals the price of one gram of gold—usually a higher amount.

  • Account requirement: Gold ETFs need a Demat and trading account. Gold mutual funds don’t. You can invest online or through an agent.

  • Ease of investing: Gold mutual funds are accessible through SIPs and don’t require tracking the market. ETFs need a bit more involvement since you trade them like stocks.

  • Transaction costs: Gold ETFs usually have an annual cost of 0.5% to 1%. For gold mutual funds, the total cost can go up to 1.2% because of management and ETF fees. Plus, gold mutual funds may charge an exit load (1–2%) if redeemed early.

  • Liquidity: ETFs can be bought and sold any time during trading hours. But the ETF market in India isn’t very large, so selling at your preferred price might be harder. Gold mutual funds, although not traded live, can usually be bought or redeemed more smoothly through the AMC.

Gold mutual funds vs gold ETFs – A comparison table

Here’s a quick side-by-side snapshot to help you decide which gold investment route suits you better:

Feature

Gold Mutual Funds

Gold ETFs

Underlying Investment

Invest in gold ETFs

Invest in physical gold

Account Requirement

No Demat needed

Requires Demat & trading account

Minimum Investment

Starts at Rs. 1,000

Cost of 1 gram of gold

Exit Load

Exit load if sold within 1 year

No exit load

Liquidity

Can redeem after market closes

Traded any time during market hours

SIP Option

Available

Not available

Price Basis

Based on NAV

Based on market prices

Best for

Investors without Demat; SIP users

Active traders; those who want flexibility

 

Comparing transaction costs, minimum investments, and liquidity can help you decide which gold vehicle better fits your financial plan. Compare Mutual Fund Options Now!

Gold remains a stable investment

Gold has stood the test of time as a safe haven during economic uncertainty. Financial experts often recommend allocating 10–15% of your portfolio to gold to hedge against inflation and market volatility. Whether you choose ETFs or mutual funds, gold can help balance your investment strategy.

Gold mutual funds are perfect for SIP investors who want to build their gold exposure gradually. Gold ETFs, on the other hand, suit those who already have a Demat account and want the option to track or even convert their holdings into physical gold. The key is to match the investment option to your comfort with risk, time horizon, and how hands-on you want to be.

Features of gold mutual funds

Gold mutual funds make investing in gold simple—even if you don’t have a Demat account or don’t want to track market prices daily. Here are some of their key features:

  • Convenience: You can invest directly through an AMC or online platform—no need to open or manage a Demat account.

  • Accessibility: These funds make gold investment easy, even for first-time investors, since the fund takes care of tracking gold prices and managing the portfolio.

  • Stability: Gold mutual funds help protect your money during uncertain times, as gold usually holds its value when markets are volatile.

  • Diversification: Adding gold to your investment portfolio can help spread risk, especially when equity markets are shaky.

Features of gold ETFs

Gold ETFs combine the safety of gold with the flexibility of stock market investing. Here’s what makes them unique:

  • Convenience: Since gold ETFs are traded digitally, there's no hassle of storing physical gold. You can buy or sell anytime during market hours.

  • Accessibility: You need a Demat and trading account, but once that’s set up, investing in gold becomes just as easy as buying a stock.

  • Liquidity: You can sell your gold ETF units in real time, which gives you better control over when and how you exit your investment.

  • Cost-effectiveness: Gold ETFs usually have lower expense ratios compared to gold mutual funds, making them a more efficient option for cost-conscious investors.

Not sure whether a gold fund suits your needs? Compare it with other mutual fund types to find the best fit for your financial goals. Compare Mutual Fund Options Now!

How are gold ETFs and gold funds similar?

Though they work differently, gold mutual funds and ETFs share some important similarities that make them reliable choices for gold investing:

  1. Secure alternative to physical gold: Both eliminate the worries of theft, purity, and storage. You get the value of gold without actually holding the metal.

  2. Portfolio diversification: Gold often behaves differently from stocks and bonds, helping balance your overall returns. This makes gold ETFs and mutual funds excellent tools for spreading risk.

  3. NAV-based pricing: Both use Net Asset Value (NAV) to determine unit value. However, gold ETFs trade on exchanges and can fluctuate during the day, while mutual funds follow the day’s closing NAV.

Whether you choose a fund or an ETF, both offer access to gold’s benefits without needing to visit a jeweller or bank.

Advantages of gold ETFs and gold funds

Both gold ETFs and gold mutual funds give you a smart, hassle-free way to invest in gold—without the stress of storing it in lockers or worrying about purity. Let’s look at the advantages they share:

  1. Professional management: These investment options are overseen by experienced fund managers who make timely decisions based on gold market trends.

  2. Diversification: Including gold in your portfolio can reduce your overall risk—especially when equity markets are volatile.

  3. Affordability: You don’t need a huge sum to start. You can begin small and increase your investment as your financial situation improves.

  4. Liquidity and convenience: Since both options are managed digitally, you can buy or sell units easily. Gold mutual funds offer SIPs, while ETFs can be traded during market hours.

So, if you want the safety of gold without the baggage of physical ownership, these are worth exploring.

Gold funds and ETFs – Performance

Performance plays a key role when comparing gold investment options. Here's a quick snapshot of how top-performing gold ETFs and mutual funds have done (as of October 28, 2024):

  • ICICI Pru Gold ETF: 28.11%

  • Kotak Gold ETF: 28.08%

  • Mirae Asset Gold ETF: 28.01%

  • HDFC Gold Fund: 27.21%

  • SBI Gold ETF: 27.34%

  • Quantum Gold Saving Fund: 27.42%

Most gold ETFs and gold mutual funds have delivered similar returns in the range of 26.5% to 28% over the year. The difference mainly comes down to cost structure, liquidity, and ease of access not performance alone.

When reviewing performance, also consider factors like fund manager expertise, past volatility, and how well it mirrors gold price movements.

Who should invest in gold ETFs?

Gold ETFs are ideal for investors who already have a Demat account and are comfortable using stock trading platforms. Here's who they suit best:

  • DIY investors who prefer to track and time the market

  • Active traders who want real-time liquidity

  • Cost-sensitive investors looking for lower expense ratios

  • Those aiming for physical gold conversion in the future (some ETFs offer this)

Who should invest in gold funds?

Gold mutual funds are perfect for investors who want exposure to gold without needing a Demat account. If you're someone who prefers a hands-off approach and values ease over technicalities, gold funds might be a better fit.

They're especially ideal for:

  • First-time investors who want to start small through SIPs

  • Investors without a Demat account

  • Those looking to hedge against inflation

  • People who prefer convenience over real-time control

With SIPs starting as low as Rs. 500 or Rs. 1,000, gold mutual funds offer a simple, accessible way to add gold to your portfolio without the need to track market hours or maintain trading accounts.

Which is better: gold ETF or gold mutual fund?

There’s no one-size-fits-all answer. Both options offer exposure to gold, but the right choice depends on your personal preferences and financial setup.

  • Go for gold mutual funds if you want to invest through SIPs, don’t have a Demat account, or prefer passive investing with professional management.

  • Choose gold ETFs if you already have a Demat account, prefer tracking real-time prices, and want the option to convert units to physical gold.

Choosing between gold ETFs and gold mutual funds comes down to how hands-on you want to be with your investments. If you prefer low-effort SIPs without needing a Demat account, gold mutual funds may suit you better. For real-time control and exchange trading, ETFs work well.
Compare Mutual Fund Options Now! to see which fits your investing style

Conclusion

When comparing gold ETFs vs gold mutual funds, both serve as reliable tools to gain exposure to the gold market. If you’re planning to invest regularly and don’t want to deal with stock exchange mechanics, gold mutual funds are the way to go. But if you have a Demat account and want more control over buying and selling especially with the option to convert holdings into physical gold—ETFs may suit you better. Whichever route you choose, gold remains a strong diversifier and inflation hedge in any long-term investment plan.

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Frequently asked questions

Why choose an ETF over a mutual fund?
One can choose an ETF over a mutual fund due to low expense ratios and operating costs, higher tax efficiency, facilities for intraday trading that enable investors to purchase and sell their shares at real-time market prices, greater transparency and visibility, access to a more diversified security portfolio, and higher flexibility when it comes to trading options and investment size, and the benefits of specialised strategies adopted by ETFs.

Is buying a gold ETF a good idea?
Generally speaking, a gold ETF investment is viable for those investors who aim at diversifying their portfolios, take advantage of rising gold prices and hedge against rising inflation, without owning any gold physically.

What are the risks of investing in gold ETF?
A Gold ETF is always subject to price volatility, does not generate any cash income, has a counterparty risk associated with the custodian and ETF issuer, and is unsuitable for those having a lower risk tolerance and short investment plans.

What is safer ETF or mutual fund?
Both mutual funds and ETFs are safe options for investment. However, the safety level is governed by several factors such as the specific investment objectives of the fund, management style, and holdings.

Is a gold ETF a superior investment to a gold mutual fund?

Gold ETFs generally exhibit lower expense ratios compared to gold mutual funds. This cost efficiency stems from their passive management approach. Conversely, gold mutual funds, due to their active management strategies, may incur higher expense ratios. Gold ETFs offer enhanced transparency as they directly track the underlying gold price.

What are the potential drawbacks of gold ETFs?

Gold ETFs are subject to certain risks, including counterparty risk, annual fees, and the possibility of tracking error, where the fund's performance may deviate from the gold price. Additionally, investors should note that they do not physically own the gold.

Are capital gains from gold ETFs tax-free?
  • New tax regime: For Gold ETF units acquired between April 1, 2023, and March 31, 2025, capital gains realized within a 12-month holding period will be taxed at the applicable income tax slab rate, irrespective of the investment tenure.
Which gold ETF is the most favorable choice?

Among the 24 funds analyzed, ICICI Prudential Gold ETF has demonstrated the highest return of approximately 28.11% since November 2023, followed by Kotak Gold ETF, which yielded a return of 28.08% during the same period

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The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

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