Buying physical gold was the favored way of gold investment by the masses. This trend changed after introduction of gold exchange trade funds or ETFs. These alongside Gold Mutual Funds have emerged to be some of most popular ways of investing in gold. The other ways of investing from the precious yellow metal include junior gold stocks, gold options and futures.
These have emerged to be better investment medium. ETF is an open ended mutual fund with units representing gold which 99.5% pure. Each unit represents a gram of gold. The units are traded on stock exchanges like single stock of any other company. The reason why gold investment has always been popular is the stability it brings along therefore an excellent way of achieving portfolio. Gold is a safe haven for investors because crisis that affects the dollar will never ‘shake’ it.
Despite the stability, gold like other investments has its fair share tricks. You should therefore familiarize yourself with differences between gold ETFs and gold mutual funds so that you know how each relates to your individual goals.
Gold ETFs are just a type of gold mutual fund and another way of investing in gold without necessity to hold it physically. ETFs are a basket of gold investments although unlike mutual funds, you cannot trade them at any instance. ETF price instead is determined by investor demand on a trading day.
Benefits of ETFs
Long term accumulation
Gold ETFs provide investors with an opportunity for accumulating gold over given time frame. Since gold can be purchased in small quantities, one may plan procurement according to future requirement like marriage of their children and so forth.
No storage risk or cost
Gold ETFs do not have risk of theft or concerns about storage cost like it happens with physical gold since they are held in paper form or demat. In case of physical bullion, you will end up paying additional charges but there are no extra charges applicable to investing in gold in ETFs. If necessary, you can exchange gold in multiples of 1 kilogram units whose purity is 0.995. Gold ETFs may be sold at transparent prices. In terms of taxation, they are far ahead of physical gold as no sales tax, transaction tax or VAT is applicable to them.
Since funds for such units are traded as stocks on exchange, they are eligible for long term capital gains in just one year. This is better than physical gold whose eligibility for long term capital gains is after 3 years
Gold Mutual Funds
Gold mutual funds hunt for capital appreciation through investing in firms engaging in mining, processing and distribution of precious metals such as gold. A fund can only qualify to be gold mutual fund if at least 65 per cent of its assets are in precious metal bullion or in securities of companies that do mining or other precious metal deals. Like ETFs, gold mutual funds are another excellent way to make profits from investment without purchasing physical gold.
Who manages gold mutual funds?
Gold mutual funds like other mutual funds are managed by assigned fund manager. The work of the fund manager is to look after a huge pool various shares of bonds or stocks. The price of a mutual fund does not vary during trading day. It is set at end of day. Mutual finds are only bought and sold after the price is set at the end of each day.
In recent times, gold mutual funds owning gold mining stocks have been attracting high net investment worth millions of dollars. Gold investing in ETFs and gold mutual funds is worth considering because of distinct legal structures, expenses, trading processes and taxation treatment that makes big difference to the investors with different goals.