What is a Gold Fund or Gold ETF? A Simple Guide

A gold fund or gold ETF lets you invest in gold without holding it physically. A gold ETF trades on the exchange and tracks gold prices, while a gold fund invests in gold ETFs. Both offer a convenient, secure way to add gold to your portfolio.

Gold has long been a favourite investment in India. Gold funds and gold ETFs let you own it digitally, without the worry of storing physical gold.

Below, we break it down with plain examples built for Indian investors. You can explore mutual funds on Stockk.

Key Takeaways

• Gold funds and ETFs give gold exposure without physical gold.
• A gold ETF trades on the exchange and tracks gold prices.
• A gold fund invests in gold ETFs.
• Both avoid storage and purity worries.
• Gold can hedge and diversify a portfolio.

How do gold funds and ETFs work?

A gold ETF holds gold and its units trade on the stock exchange, tracking the price of gold. You buy and sell units through a demat account, just like a share. A gold fund is a mutual fund that invests in gold ETFs, so you can invest through the regular fund route, including SIPs, without a demat account.

Say you want gold exposure but do not want to store physical gold or worry about purity. A gold ETF or gold fund gives you the price exposure digitally, securely and conveniently.

Gold ETF vs gold fund

What is tracking error in a gold ETF?

One practical detail is tracking error, the small gap between an ETF's return and the actual price of gold. It arises from the fund's expenses, cash it holds, and how closely it can follow the metal. There is also a timing issue: the underlying gold trades on commodity exchanges like the MCX that stay open after the equity market closes, but the ETF and any gold fund do not update their value once the stock market has shut. So the ETF price can lag the live metal price, which makes perfect tracking difficult and is worth checking before you choose a scheme.

Why add gold to a portfolio?

• Diversification: gold often moves differently from equity
• Hedge: it can hold up in uncertain times
• Convenience: no storage or purity worries
• Liquidity: easy to buy and sell

Points to keep in mind

Gold does not produce income like interest or dividends, and its price can be volatile, so it is best held as a portion of a diversified portfolio rather than the core. For most investors, a modest allocation to gold via a fund or ETF adds useful diversification and a potential hedge.

To apply this, you can invest through Stockk mutual funds, run on Indira Securities. Start with a free account, then dig into the Knowledge Center on equity funds.

Mutual fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not a guarantee of future returns, and this article is for learning only, not investment advice.

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