Gold ETFs or Gold Funds: Which One Should You Choose?
By Neelima Shankar
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As an investment option, gold has always been popular in our country. Its association with goddess of wealth, Lakshmi, and the significance of buying gold in the auspicious day of Dhanteras makes it the most sought after metal in the country.    

Increasing the yellow metal's popularity is the fact that now investors have a number of options by which they can make investments in gold. It means that apart from buying physical gold in the form of jewelry or coins, investments can also be made in paper gold, which for some, may be a more convenient way of owning the precious metal. Paper gold includes investments made via gold exchange trade funds (ETFs), gold mutual funds or E-gold. In a previous article, RupeeTimes had discussed the benefits of investing in gold and the various ways to do so. In this article, RupeeTimes explains and compares the two most popular forms of paper gold - Gold ETFs and Gold Funds.

Parking funds in gold ETFs is an attractive alternative, but for this, investors should have demat and trading accounts. For those who want to evade these hassles, gold savings fund is a good option. Gold savings fund, or simply gold fund, can be defined as mutual fund of funds (FoF) which invests money in gold ETFs. But, it adds an extra layer of charges for investors, which lessens the amount of their overall returns. Generally, gold funds seem to underperform the gold ETFs in their portfolios. This raises an important question as to whether investors should consider this new kind of mutual funds or should they restrict their investments to gold ETFs only? To answer this question, investors should compare both these instruments in the following aspects.

Additional expenses

Given that gold savings funds park their money in gold ETFs, it seems logical that they earn slightly lower returns as compared to the returns earned by ETFs. However, this is not a major reason of worry for investors who want to invest in them. Gold funds are not at a liberty to levy this extra charge on their own. They have to follow the guidelines laid down by Securities and Exchange Board of India (SEBI), which has set a limit on this charge at 1.5 percent per year. Due to this reason, gold funds are able levy only 50 bps as additional charges at their (f-o-f) level.

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