Investing in Gold the Smart Way ETFs and Gold Mutual Funds

June 7, 2025

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Rekha, fresh into her first job, had saved ₹30,000. On a humid Saturday, she paused outside ABC jewellers, eyeing a delicate gold jewellery just within her budget. But just as she considered stepping in, her phone buzzed: “Gold ETF at ₹80 per unit today.”

A gold bracelet she could wear, or gold as a financial instrument that could grow—what would truly protect her savings?

In the next few minutes, we will show you why ETFs and mutual funds are the smartest way to invest in gold, not just in terms of return on investment, but in terms of practicality as well. Read on…

Your Two Main Financial Instrument Routes: Gold ETF & Gold Mutual Fund

a. Gold ETF - Low‑Cost, High‑Control

A gold ETF lets you buy tiny portions of gold in the form of units that can be traded on the stock exchange like shares. You don’t need to buy a whole gram of gold to start your gold ETF buying journey. Most modern ETFs represent 0.01 grams of 99.5 % pure gold (24 carat) held in a SEBI‑approved vault. (For some legacy ETFs, one unit denotes 1 gram to 0.5 gram of gold.) Because each unit is so small, the price stays around ₹80–₹85 when gold trades near ₹8,000 a gram.

Why Gold ETFs Appeal to Smart Investors:

● Zero Making Charge

Since you're buying gold as a financial instrument, you avoid traditional making charges entirely. You only incur a small annual expense ratio of the fund. This expense ratio hovers somewhere between 0.25 % – 0.80 % a year, as opposed to 8% to 15% making charges for gold jewellery and 2% to 3% for gold coins. This makes ETFs a much more cost-efficient way to invest in gold.

● Impressive Liquidity

Unlike physical gold or even gold bonds, ETF units trade on NSE/BSE like any stock; You can buy or sell during market hours and receive funds in your bank account by the next working day—no visits to jewellers, no price negotiations.

● SIP Friendly Ticket Size

As of May 2025, a gram of gold (24 carat) costs around Rs.9700. It’s not always possible for a person to invest that amount every month. However, in the case of an ETF, because one unit represents as little as 0.01g of gold, you can start or run an automatic ₹500 monthly SIP and keep averaging without timing the market.

How Pure a Unit of Gold Is When Invested Via ETF?

If you are worried about the purity of gold that’s invested via ETF, let’s put that worry to rest. Each ETF unit is backed by 99.5 % (or higher) certified bullion stored in SEBI-regulated vaults, so there’s no guesswork, Carat testing and no risk of alteration when you sell. The custodian appointed by the fund handles the storage, insurance, and security of the gold—at no extra cost to you. That means no bank locker fees, no insurance premiums, and complete peace of mind.

Daily Disclosure of Tracking Difference Keeps the ETF In Line

While tracking difference is officially disclosed monthly, SEBI encourages more frequent updates. As a result, many Gold ETFs now publish tracking errors weekly or monthly, improving transparency and investor confidence. To stay competitive, fund managers work to keep the price gap between ETF units and actual gold prices within ~0.5%. In practical terms, this means the annual tracking difference typically ranges between 0.3% and 0.8%. So, your returns from a Gold ETF closely mirror physical gold, without the added friction of making charges, purity concerns, or storage hassles.

Gold Mutual Funds - The Fire and Forget Route

Gold mutual funds invest in gold assets, stocks of gold mining companies, and gold ETFs. In India, most gold mutual funds simply buy units of their own AMC’s gold ETF (and hold a tiny cash buffer for expenses). You own units of the mutual fund, not the ETF directly, so you don’t need a demat or trading account.

Gold Mutual Funds are a Plain Vanilla Investment Option - And That Exactly Is Their USP

If you already invest in equity or debt mutual funds, you can just add a gold mutual fund to the same portfolio through the same broker or fund house. No need to create a DEMAT account. Units are allotted/redeemed at the fund’s end-of-day NAV, so you avoid the intraday spreads that ETFs face on thin-volume days.

These funds allow you to invest as low as Rs.100 as a monthly SIP, far below the price of a gram of physical gold. Gold mutual funds are fairly liquid as well. Although they are not as liquid as ETF funds, as per SEBI guidelines, the redemption proceeds should be credited to the investor's account within 3 working days from the date of redemption. The Gold Mutual Fund could be redeemed / switched over within 15 days from the date of allotment by paying 1% exit load. No exit load is payable if units are redeemed/switched out on or after 15 days from the date of allotment.

Lower Behavioral Costs Compared to ETFs

Gold ETFs are exchange-traded. You can trade the units just like stock shares. And this is where the problem begins. When we have the freedom to tweak our investments on a real-time and daily basis, there will invariably be investors who will keep on tinkering with their gold ETF investments every time they come across some news. Because you can only buy or sell at end-of-day NAV, the usual urge to time intraday gold moves disappears - ideal if you’re prone to tinkering.

Reasonable Total Cost of Ownership:

In Terms of Tax, Why Gold ETFs and Gold Mutual Funds Are the Smartest Way Forward:

Channelise Your Love for Gold

We Indians have an intrinsic emotional connection with gold. From the mythological city of Alkapuri (home of kubera, the god of wealth) to the very almirah of our mothers, our relationship with gold has been shaped by culture, dream, myth and pure practicality.

Time has come to Channelise this love for gold. Instead of buying physical gold, why not invest in Gold ETFs and gold mutual funds? Gold ETFs and gold mutual funds offer a way to retain emotional value while gaining financial advantage - no making charges, no storage hassle, and complete transparency.

It’s not about letting go of tradition - it’s about updating it. Gold can still be your security blanket, but now it can also be your earning ally.

Remember, Gold ETFs and mutual funds are SEBI-regulated, ensuring transparency and investor protection.

The gold backing your investment is stored in high-security, insured vaults, not under a mattress.

Gold isn’t just an investment- it’s a cultural asset. Many Indians buy gold to gift during weddings or secure their child’s future. But now, with Gold ETFs and gold mutual funds, you can honor that tradition without lockers or making charges. It’s gold with emotional value and financial sense, SEBI-regulated, and future-ready.

If you feel like you want to invest in Gold Mutual Funds and ETFs through a broker with whom you can meet at the office and talk to real HUMAN agents, consider investing with Dayco India.

-Marifur Rahaman

-Dayco India

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Investing in Gold the Smart Way ETFs and Gold Mutual Funds

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