Gold ETFs vs Mutual Funds: Which is the Best?
Investors are generally confused about investing in mutual funds and gold ETFs. They are unable to decide which option is right for them and which one they should invest in. So through this article we are going to give you information about this.
Mutual funds are an investment option, through which investors collectively invest in the company’s shares and bonds. You can choose to invest in it directly through fund houses, brokerage firms or apps. There are many types of mutual fund schemes in the market. Therefore you should invest by choosing a good plan based on your risk appetite, investment objective, investment horizon etc. These funds are managed by professional fund managers. The objective of these managers is to provide the highest returns by taking advantage of the fluctuations in the stock market. Mutual funds are an ideal option for investors who want to invest for long term and make capital. A mutual fund portfolio consists of both equity and debt instruments. Through this, the avenue is offered to investors to balance the risk as well as provide higher returns.
Gold Exchange Traded Fund (ETF) is a type of open-ended mutual fund scheme that invests investors’ money in standard gold bullion. Investors who want to buy gold, but not in physical form, can easily diversify their portfolio through such schemes. Through this, they can reduce the risk of inflation and can access and invest in gold market through online. This investment is based on fluctuations in gold rates, so it is less volatile than equity. Such investments do not include other fees like physical gold, but if you invest in gold ETFs, you will have to pay brokerage fee and fund management fee. If you are planning to do more amount or regular trading for medium term, then investing in Gold ETF is beneficial. This type of investment offers dual benefits of stock trading as well as low volatility. It is an ideal investment option for those who have a good knowledge of gold trading.
Mutual Fund vs Gold ETF
Below is the information about mutual funds and gold ETFs based on various points. Through this, you can guess what you should invest in –
Investing in mutual funds is quite economical and flexible. To invest in a mutual fund portfolio, you can use SIP (SIP) mode or opt for a lump sum payment. You can start investing with a minimum of Rs 1000 and the investment amount depends on the total amount of units you want to buy. In contrast, gold ETFs have 1 gold ETF, equal to 1 gram of gold. In this, you have to decide the amount of gold you want to buy. Gold ETF prices also increase and decrease when physical gold prices fluctuate.
Both Gold ETFs and Mutual Funds can be purchased online. However, to invest in any of these, you must have a demat account. Gold ETFs are actively traded on the stock exchange. Gold ETFs have the same value as physical gold and are highly liquid. However, while investing in mutual funds, you have to choose the portfolio according to your risk carrying capacity.
Mutual fund investing is considered safer than others, as it diversifies portfolios by investing in a wide variety of assets and reducing risk. So if an asset is not performing well, the performance of other assets helps to balance the volatility. You can also switch funds to increase the performance of your portfolio. On the other hand, it is safer to invest gold, as it helps in reducing the effect of currency fluctuations and inflation. Also, the price of gold does not have huge fluctuations like equity. This is the best way to diversify your portfolio and balance the risk of equity investment.
Mutual funds are professionally managed. The fund manager provides you with attractive returns by investing in the right stocks and buying and selling during market fluctuations. However the expense ratio and taxes of mutual funds can affect your returns. Gold ETFs are an ideal option for conservative investors who invest in the medium and long term. Returns on these investments are less than 10%. However, Gold ETFs have very low brokerage charges, which can increase your returns.
Which investment option is better?
In emerging economies like India, mutual funds have outpaced gold ETFs due to their high growth potential. So if you are looking for a low risk medium investment option, then Gold ETF is best for you. But if you are willing to take moderate risk to get high returns in the long term, then mutual funds can be a great option for you.