A Mutual fund is an investment option where investors collectively invest in company shares and bonds. You can opt to invest directly through a fund house or a brokerage firm or through an app. The mutual fund market is flooded with schemes and thus it is important to understand and choose funds based on your risk-bearing ability, your investment objective, and your investment horizon.
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Since these funds are managed by professional fund managers, they aim to generate the highest returns by riding the share market fluctuations. Mutual funds are ideal for investors who want to create a corpus in the long run. A mutual fund portfolio contains both equity and debt instruments thus offering investors an avenue to balance the risk as well as enjoy higher returns at the same time.
Gold exchange-traded funds are a type of open-ended mutual fund scheme that invests money pooled from investors in standard gold bullion. Investors who wish to own gold but not in physical form can easily in such schemes to diversify their portfolios, hedge the risk of inflation and get exposure and access to the gold market online.
See Also: How Mutual Funds Work?
Since these investments are based on the fluctuating rates of gold they are less volatile when compared to equities. Though it doesn’t involve making charges unlike physical gold, you have to pay the brokerage charges and the fund management charges if you invest in gold ETF.
Investment in Gold ETF is beneficial if you are planning to invest a high amount for a medium-term or indulge in regular trade. This type of investment comes with the dual benefit of stock trading as well as lower volatility on investments. This is an ideal investment for people who have a sound knowledge about gold trading.
Mutual fund investment is quite affordable and flexible. You can take the SIP route or opt for lump-sum payments to invest in mutual fund portfolios. The minimum investment starts from Rs. 1000 and the investment amount depends on the total amount of units you wish to purchase.
On the contrary, 1 gold ETF equals 1 gram of gold. Thus here you can decide the quantum of gold you can purchase, unlike physical gold. The value of gold ETF also increases and decreases with the change in the price of physical gold.
Both gold ETFs and mutual fund investment can be purchased online. However, you have a DEMAT account to invest in any of these.
However, while investing in a mutual fund you can choose and investment portfolio as per your risk-bearing capacity.
Mutual fund investments are considered safe as they aim to reduce risk by investing in a range of assets classes and diversifying your portfolio. Therefore, even if one of the assets is not performing well then the performance of other assets will help you balance the fluctuations. You can also switch between funds to enhance the performance of your portfolio.
On the other hand, gold investments are safe as they help you hedge the currency fluctuations and inflation. Also, the price of gold does not fluctuate heavily unlike equities. They are the best way to diversify your portfolio and balance risk posed by equity investments.
Mutual funds are professionally managed funds and thus they fetch you attractive returns by keeping track of the market, identifying and investing in the right stocks and buying and selling them when the time is right. However, the expense ratio and tax on mutual funds can impact your returns.
Gold ETFs are ideal for conservative investors who wish to invest for the medium to long term. The returns on these investments are below 10% and thus you can allow only a percentage of your investments in gold. However, gold ETFs come with minimal brokerage charges and no exit load that can amplify your returns.
In emerging economies like India, the mutual funds have outperformed the gold ETFs due to high growth potential. So if you are looking for low risk- moderate returns investments then gold ETFs are best for you. But if you are willing to take a moderate risk to gain high returns in the long-term then mutual funds can be a great option for you.
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