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What Is the Difference Of Gold ETFs and Mutual Funds?


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

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

etf investingGold 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.

What Is The Best Gold Investment?


The kind of gold investment to make is not always a straight answer for one to get from an expert in gold trade. This is because the right purchase for any investor depends on the individual needs. The answer about what you buy most likely lies in the reason interest in buying gold. If your goal is to capitalize on price change, bullion coins can serve your needs.

gold coins investingYour interest may be to preserve long term assets and still you got other concerns on monetary and /or capital controls which are more complex situation. In this scenario, you may need to include lower premium types of American pre-1933 and parts European gold coins in this mixture. These are coins treated by United States government as historical objects since 1930s. They therefore allow investors to their privacy minded higher safety degree than that of bullion gold. You can still acquire these at reasonable value or premium fusion.

This however is just part of gold IRA investing reviews. You can decide on a more refined strategy by having comprehensive discussion with a gold broker. Someone with experience in gold investing will help you to design a proper portfolio for overcoming uncertain times while taking your long term goals into consideration. The final decision about how to allocate gold lies with an investor. It is important for the investors to surety that they get gold items that are the best ones to meet their needs.

Although circumstances by different investors are different it is easy to get ideas on the best way to divide investing in gold by first searching for right information.

Difference between hold shares and physical gold

The first thing that comes to mind upon hearing the word gold is the metal in physical form. However, hold shares is also another way to invest. The difference between the two kinds of investment is risk.

On investment risk pyramid, ownership of physical gold is on lowest level signifying it has less risk.

Share ownership gold mines are classified on second or even third level which is higher risk   due to involvement of major mining company or gold producer.

These facts are essential to know when making gold investment:

  • You can use physical gold to purchase or barter items during crisis but it is difficult to use mining stocks for such purposes.
  • Physical gold ownership does not have dividends but mining stocks will pay dividends if when they are profitable
  • Mining stocks can be affected negatively is stock market is closed. Investors in physical gold are protected during economic depression, political unrest and wars.

Bull market

During bull market in gold, price of the physical metals will be higher but the golf mine shares are utilized for physical price. It simply means when price of gold increases; profits from the mining shares also rise in terms of percentage.

Generally, investment in precious metal is more of investment while mining stocks can be considered to be more speculative. However, increased risk will increase potential return therefore it does not hurt to invest in both.

stocks of gold mining companiesSuccessful mining companies may increase by factor of 5-10 times more than price of gold. In longer term, stock prices of the major gold producers will increase by factor or 2-3 times more than price of gold. The reason for the leverage is that rise in gold price will not lead to increase in cost of production. For companies already profitable, additional income is generated from selling gold at rate that is higher directly to bottom line price.

A factor to remember in gold investment is mining stocks represent claim of gold still in the ground. The ownership therefore involves even the risks involved with any other stock investment such as liabilities and debts. Physical gold however is a financial asset that is not the responsibility of anyone else.