What are gold savings funds?
- Gold savings funds and Gold ETFs are both invested in gold.
- A gold savings fund is a mutual fund that invests the money collected from investors in gold. It can be invested by any individual investor who has a Demat account.
- The minimum investment required for the Gold savings fund is Rs. 5000 and there is no lock-in period.
What are gold ETFs?
- Gold ETFs are exchange-traded funds that track the spot price of gold. It can be traded on stock exchanges such as NSE and BSE.
- In Gold ETFs, an amount equal to 1 gram of gold can be invested at a particular time and even 1/100th of a gram can be purchased as compared to a Gold savings fund where you have to invest a minimum of Rs 5000 at a time.
Differences between Gold savings fund and ETFs as investments
Gold Savings Fund and Gold ETF are both popular investment options in India. Though they are both gold-based, there are certain differences between the two.
- Gold Savings Fund investments are made through in funds whereas Gold ETFs investments are made by purchasing from the stock exchange. Gold Savings Fund is a physical asset while Gold ETF is a dematerialised form of investment. However, both of them are related to gold hence when things like gold rate Jalgaon or Patna become popular it is highly likely that savings fund and ETFs are also going to give you good rewards.
- The minimum investment amount for a Gold savings fund is Rs 1,000 per month while the minimum amount of investment for investing in Gold ETFs varies from Rs 1,000 to Rs 10,000 depending on the scheme.
- Since there is no lock-in period for investing in Gold Savings Fund, it can be redeemed anytime, however, to redeem a Gold ETF an investor has to wait until he can sell it on a stock exchange which may not always be possible.
- Gold Savings Funds have units that are priced based on the price of gold on a given day. For instance, if 1 unit costs Rs. 2,000 today, which means the value of 1g of gold is Rs. 2,000. The Gold ETFs track the movement in gold prices and are priced exactly like gold bullion. The price of one unit of Gold ETF can vary from one rupee to thousands of rupees depending on the market price of gold at that time.
- In Gold Savings Fund you have a systematic investment plan whereas Gold ETFs do not. SIP is an easy way to build your investment portfolio and also lets you buy units at regular intervals to average out the cost of buying the units.
- Gold ETFs are traded on stock exchanges and are more volatile.
- The fund manager buys gold from the market when you put money in SIP. A Gold ETF is an open-ended fund and is more liquid compared to a SIP. In a SIP, you do not own gold directly but hold it as units of paper-gold.
- In the case of Gold savings fund NAV(Net Asset Value) has to be calculated every day but in the case of Gold ETFs NAV is calculated daily based on the previous day’s closing price.
So now that you are aware of these two forms of interest you can expand your investment horizon and instead of merely tracking today gold rate in Gwalior or wherever you may live in the hopes that if the prices become affordable you may buy gold you can now just start investing through gold funds or ETFs.