Why Gold MF makes more sense for retail investors as compared to Gold ETF?

Gold ETF: Which is a better investment bet, gold or gold ETFs? Find out

Today, other than the traditionally available physical gold, you can also invest in gold digitally or using financial instruments. Options such as the gold mutual fund (MF) or gold exchange-traded fund (ETF) are easily accessible. These options have their own benefits and limitations. Take note of the following aspects if you are looking to invest in gold through gold mutual funds or ETFs.

Where does your money go?

Gold MFs are open-ended mutual funds that invest in units of Gold ETFs. Gold ETFs are similar to stocks. You can trade them using your Demat account. These instruments invest in 99.5% purity physical gold. This makes investing in gold ETF the same as in physical gold without the markup making charges.  

Minimum amount

You can start a systematic investment plan in a gold MF for as low as Rs 1000, on the other hand investing in gold ETFs usually requires a minimum investment amount for 1 gram of gold at the price of that day.

Investment mode

Like any other mutual fund, gold mutual funds can be added to your portfolio through direct purchases or even through SIPs. However, to buy an ETF, you need a Demat account.


Since ETFs are listed on the exchange and trade throughout the day, they offer higher liquidity. However, at times, it might be difficult to close positions due to lower participation. On the other hand, you can redeem the gold mutual fund units you have purchased because there is no lock-in on the investment. However, an exit load might be applicable. 

Transaction costs

Gold MFs are actively managed and thus, have a management fee and exit load (if redeemed or switched within 12 months). ETFs passively track an index, lowering the management fee and removing the need for exit load. However, ETFs also have an incidental cost of maintaining a Demat account.


For both investments, Long Term Capital Gains tax is applicable if the holding period is more than 36 months. For a shorter period (less than 36 months), the gains are added to the income and taxed as per your income tax slab.


It is easier to get started with gold mutual funds to invest in gold while avoiding physical ownership of the yellow metal. Contrarily, ETFs offer returns corresponding to the movement of the metal price and might be good for short-term traders. For a long-term retail investor, it makes more sense to invest in a gold MF instead of an ETF.