Gold Saving Funds V/s Gold ETF
It is essential to look at the difference between Gold Saving Funds and Gold ETF’s. The Gold saving fund mainly marketed on the fact that one can invest in gold funds without owning a demat account and at the same time set a SIP for the same. However, the alternate option of Gold ETF’s doesn’t not permit investments and/or SIPs without a demat account. However such details are hidden by agents as well as the details of costs and do not educate their clients on how things actually works.
What are Gold Saving Funds?
Gold Savings fund consists of simple investments. It is basically a mutual fund that invests in their Gold ETFs instead of regular ETFs. They also invest in some other short term funds as well. If the investor is unable to consistently track his or her investment or even if he is new to the investment world, it is a valuable option to invest, since it is a systematic investment plan of Gold Savings fund. These funds however do not directly invest in gold but indirectly through Gold ETFs. However, being termed as a Gold Savings fund it invests through Gold ETFs, and they generally have higher charges.
What is a Gold ETF?
Gold Exchange Traded Funds aka Gold ETFs make direct investments in Gold. The fund manager keeps a lookout for daily gold prices and trades in physical gold to make the desired returns. Gold ETFs also have their own high cost ratio which is considered as the secret of the great investment results. The investments take place electronically meaning that one can invest in gold without actually holding it in a physical form. But an individual needs to own a Demat account in order to invest in a Gold ETF. Also, investments cannot be made through an SIP, which is not the case with Gold Savings Funds.
Main Differences between the Types of Gold Savings
The main differences between Gold Savings Fund and Gold ETF are:
- In Gold Savings Fund investments are made through in funds whereas for Gold ETFs investment is made by purchasing from stock exchange though a demat or trading account.
- The minimum investment required for Gold savings fund is Rs. 5000 which is a lump sum amount, initially and also additional purchase may be made of Rs 1000 and over Rs 1000 per month for 6 months in the case of an SIP. On the other hand, for Gold ETFs an amount to equal to 1 gram of the yellow precious metal is the minimum although QGold allows a minimum of 0.5 grams of gold.
- For Gold Savings Fund you have a systematic investment plan whereas Gold ETFs do not. However, the investor can decide to invest systematically based on their needs and requirements.
- Entry loads are not applicable for ETFs. However, Gold Saving Funds have some upfront commissions payable to the distributor or fund manager.
- For exit loads Gold Savings Fund requires 1%-2% and varies based on the fund and timing of the exit. Generally there is no exit load after a year. Gold ETFs do not have any exit load.
- The fund requires brokerage and delivery costs on purchase or sale of ETFs but ETFs themselves.
- GSFs requires bearing the exit load when applicable on redemption whereas ETFs are highly flexible since the investor can sell any time as well as withdraw funds net of brokerage or even delivery costs.
- Total transaction cost in GSF include Brokerage, delivery cost and exit load whereas ETFs only require brokerage and delivery costs.
- Fund operating expenses are required at the ETF level only for the same but for GSFs it is required at feeder fund level as well as the ETF level.
- GSFs are moderately flexible when it comes to strategy since when gold prices are it its highest the investor’s SIP will still be purchasing and the investor cannot buy or sell at his or her will due to the constraints. In the case Gold ETFs which are highly flexible one requires to purchase minimal one unit. The investor can buy or sell as per their own investment strategy and asset allocation requirements and skills.
- Gold ETFs are tradable at the market and Gold Saving Funds cannot be traded in the market.
As you can see from the above differences that even though Gold Savings Fund do not require any exclusive attention, there are extra charges that are required. Also Gold ETFs can be managed at will. However, if you think you do not have the skill to buy Gold ETFs yourself, perhaps Gold Savings Funds are a better idea for you.
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