Difference between Gold Saving Funds and Gold ETF ?

Today we wll see what is the difference between Gold Saving Funds and Gold ETF’s . The biggest marketing pitch for selling the Gold saving fund is that one can invest in gold funds without a demat account and can set a SIP for the same, which is true. However, the alternate option of Gold ETF’s doesn’t not allow investments and/or SIPs without a demat account. But most of the agents hide these details of costs and do not educate their clients on how things work!

Gold Saving Funds

Source : Kotak Website

As of today, Reliance, Kotak and Quantum have launched their Gold Saving Funds of Funds. All of these Gold saving funds are almost same. Lets take an example of Reliance Gold Saving Fund, which is nothing but a fund of funds which invest in their respective Gold ETF’s :) Did you know that?

Difference between Gold Saving Funds and Gold ETF’s ?

Gold ETF’s : Let’s understand this for a moment. In simple terms, these are financial products which invests in physical gold and tracks its pricing on day to day basis. These ETFs have their own expense ratio which is considered very high if compared to US market, but that’s the price we pay to invest in gold electronically. You need a demat account to invest in Gold ETF and you can trade these ETFs through stock exchange.

Gold Saving funds are nothing but mutual funds which invests majority of its corpus (90%-100%) in Gold ETFs (of the same sister company), a small portion might also be in money market instruments or some short term debt products. For example Quantum Gold Saving Funds of Funds as per its mandate can invest anywhere from 95%-100% in the units of Quantum Gold ETF’s, and rest in money market instruments and other short term debt products. But the important point you should note here is that the underlying investment is still gold, but not directly! It’s indirectly through gold ETF’s, and now as there are two layers in between, you pay charges two times!

So you pay charges for Gold saving funds and also for gold ETF’s, this part is generally not revealed by the agent who sells you these Gold saving funds. Also for the gold saving funds there are high exit load’s :)

Gold Saving Funds

So which one is better and which one you should choose ?

We can’t make a general statement that one is good and the other is bad, because it’s not like that. If someone does not have a demat account and wants to automatically invest in gold each month through SIP, gold saving funds are the best option. But for someone who is conscious about the expenses and can invest through his demat amount each month, Gold ETF’s are a good option. But high charges will surely hurt in long run! One important point is that do not confuse gold saving funds with “gold mutual funds” which are mutual funds investing in gold mining companies, they are totally different.

Gold Saving Funds

Conclusion

A lot of investors are lured into these gold saving funds without giving any information on the charges, which is not right. Gold saving funds over a long-term can really eat away your returns because the high charges will cut a big pie out of the returns earned.

139 CommentsAdd Comment

  1. Rahul Nagarani

    For a long term, its better to go with Gold Funds as you will not have to bear with all the Dmat maintainance and brokerage charges. Please be informed that brokerage charges are applicable when you sell too. So its double hit here too (while buying as well as selling).

    However, if you are a short term investor, then you need to consider the exit load as well with respect to Gold Fund. Exit load is quite high, as high as 2% for some Gold funds.

    Regards,

  2. Abhijeet

    I guess i will go for ETF , guarantee is the last thing that we get these days ..
    So Hoping for best , will do the rest ..

    thanks so much manish for the advice ..

  3. Abhijeet

    Hi Manish,

    I want to invest in gold for a period of 2-3 years , i have Basic service Demat account.
    can you please suggest which would be the better option for me , Gold saving Funds or ETF .I can invest further but i would need some return after 2-3 year as i need them for my marriage .

    Thanks,
    Abhijeet

  4. flowerlady

    Hi Manish,

    I am planning to invest in gold ( for investment as well as for my daughter). I already have a demat account. Do you think Gold ETF would be good for long term (like 5-10 years) ? I have demat a/c with aditya birla money.

    Can you please temm which is usually good for long term Gold savings fund or Gold ETFs.

    Thanks
    Flower

  5. Satya

    Hi Manish,
    Gold has been collapsed quite from last few weeks. What’s your opinion/prediction on this?
    I am thinking to invest in Gold Saving Fund but not sure how much benefit I will get in coming 5 years.
    Let me know your thoughts.
    Thx,
    Satya

  6. Prithvi

    Most ETFs you can buy equivalent to 1gm as units. Where as Gold savings you can invest minimum from 100/- every month. If you want to invest more than 3000/- per month and if you have DEMAT account ETF is good.

  7. Sunand

    Also what is the dividend payout option in Reliance R* Shares Gold ETF? What is the rate of dividend and is it applicable for investors who invest through exchange?

  8. Sunand

    First of all excellent article. However, should not one consider 0.5% brokerage charged on each transaction in ETF? Now if you compare the charges between them, then they come out to be more or less same right. Also can you please explain how and when is the expense ratio charged on the ETF transaction? (For eg. at the time of buying or at the time of selling or any other time.) Also if one holds the ETF for less than one year, then will the expense ratio be exempted? Thank you in advance.

  9. Joel Vaz

    Hi Manish,

    I am planning to invest into Quantum Gold Saving Fund by start of March. My time horizon is of 18 to 24 months. Will be investing 10000 p.m.

    I am aware of the charges involved in both ETF and Gold Saving Funds. I do not have a Demat account for ETF.

    Do you think that I am doing the rite thing by investing in this fund for the said period.

    Also can you please give your take on Reliance My Gold plan, wherein on maturity the payment is in Physical Gold.

    Thanks,
    Joel

  10. bhavadeep

    hi this is bhavadeep. am thinking to invest on gold ETF of kotak mahindra bank.
    is this a better way of investing gold….or shall i buy a physical gold.
    actually am thinking to buy for 170000…
    the brokerage charges are like
    online trading: same day=0.05% and delivery day=0.5%
    ofline trading : same day:0.04% and delivery =0.4%
    is this a less brokerage charge ?
    please suggest me friend …….

  11. Ganeshan Nadarajan

    A lot of investors are lured into these gold saving funds without giving any information on the charges, which is not right. Gold saving funds over a long-term can really eat away your returns because the high charges will cut a big pie out of the returns earned.

  12. Abhinav Gulechha

    Thanks Manish for the valuable information. I invest in gold fund (after being aware of the double load involved), as I dont have a demat account and wont want to open it for gold investing purpose only.

    You have made a very right point on the expense ratio and its benchmarking – since there is no active fund management, SEBI should look into possibility of reducing loads in these funds.

    Abhinav

  13. Vaishnavi

    Hi Manish
    All your blogs are very informative and eye openers. Till now i have been concentrating on investing in LIC,PO and RD’s in bank. I do share trading , but have never invested SIP. I have decided to start SIP’s after seeing you blogs.
    I have selected the following Funds to start off with
    1. HDFC top 200 fund
    2. Reliance Gold savings Fund or Reliance ETF.
    Going by your blog i feel its best to invest in Reliance ETF than gold savings gold.
    Thanks a lot for guiding financial illeterates with your blogs.
    Vaishnavi

  14. Rajeev Poonia

    hi
    I want to invest 5000 in Gold MF. but i have confuse between gold etf and gold saving fund …..which is better for long run. please give me advise about matter…..?

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