Most investors try to find the right balance in investing, and in their quest to do so, most experts ask them to pay attention to asset allocation. In India, if we look at gold just as an investment, it holds a lot of value, sentimental value.
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Over the years, the way we invest in gold has changed. Previously, it was just physical gold, and then came gold-based mutual funds, then Sovereign Gold Bonds, and then ETFs.
SGBs are great, but in this blog, we will compare gold mutual funds and gold ETFs and one important aspect that is not discussed at large.
What are Gold ETFs?
Gold ETFs are the ones that invest in the physical form of gold. They are passive investments, and the idea is to track the price of physical gold. They have a lower expense ratio compared to mutual funds.
What are Gold Mutual Funds?
Gold mutual funds are just like any other mutual fund, pooling money and investing it. In the case of gold mutual funds, they invest in gold ETFs, which further invest that money in physical gold of the purest quality.
Now, let’s talk about one of the hidden factors that most investors have missed.
You see, when investing in any mutual fund, one of the important factors that we look at is the expense ratio. Now that we are comparing mutual funds and ETFs, we all know that ETFs are supposed to be the ones with low expense ratios. But if you check any platform, gold mutual funds have a low expense ratio.
But how is that possible?
To understand this let’s look at some data.
For this purpose, we have taken the top five gold mutual funds based on their AUM.
| Fund Name | AUM (Cr.) | Expense Ratio |
|---|---|---|
| HDFC Gold ETF FoF | 3303 | 0.18% |
| SBI Gold Fund | 3225 | 0.10% |
| Kotak Gold Fund | 2655 | 0.16% |
| Nippon India Gold Savings Fund | 2623 | 0.13% |
| ICICI Prudential Regular Gold Savings Fund | 1741 | 0.09% |
Source: 1 Finance Research
Now, let’s look at the list of ETFs from the same AMCs.
| ETF Name | AUM (Cr.) | Expense Ratio |
|---|---|---|
| HDFCGold (HDFC) | 8539 | 0.59% |
| SETFGOLD (SBI) | 7036 | 0.73% |
| GOLD1 (Kotak) | 6912 | 0.55% |
| GOLDBEES (Nippon) | 18780 | 0.82% |
| GOLDIETF (ICICI) | 7081 | 0.50% |
Source: 1 Finance Research
Now, if you look at both the tables, the mutual funds are charging a low expense ratio compared to ETFs. Why?
All the mutual fund schemes are investing their money in ETFs, and ETFs invest that money in gold. Here is where the less-known factor comes into play: the dual expense ratio.
Mutual funds show you the expense ratio just for the mutual fund scheme, but if you see the factsheet of those gold mutual funds, they will charge you for the ETF as well.
If you see the image, which is taken from the factsheet of the SBI gold fund, pay attention to the note, which says, In addition to the mutual fund expense ratio, investors will have to bear the expense ratio of the schemes the fund is investing in.
Here is another example from the ICICI Prudential Regular Gold Savings Fund factsheet where they have also specified the additional expense ratio that the investor will have to pay.
In the Nippon India Gold Savings Fund, the investor will incur an additional expense ratio of 0.82% of the underlying ETF, over and above the fund’s regular charges.
Similarly, for the Kotak Gold Fund, investors will bear an additional expense of 0.55% of the underlying ETF.
Here is the list of gold mutual funds and ETFs from all AMCs, along with their expense ratio breakdowns as of February 2025.
| Scheme Name | FoF (Direct) | FoF (Regular) | ETF | Total Exp. Ratio of Gold Fund – Regular (Regular + ETF) | Total Exp. Ratio of Gold Fund – Direct (Direct + ETF) |
|---|---|---|---|---|---|
| Aditya Birla Sun Life Gold Fund | 0.20% | 0.52% | 0.54% | 1.06% | 0.74% |
| Axis Gold Fund | 0.17% | 0.5% | 0.56% | 1.06% | 0.73% |
| Canara Robeco Gold Savings Fund | 0.22% | 0.25% | 0.8% | 1.05% | 1.02% |
| DSP Gold ETF FoF Direct Growth | 0.17% | 0.52% | 0.48% | 1% | 0.65% |
| DSP World Gold Fund of Fund | 1.78% | 2.38% | – | 2.38% | 1.78% |
| Edelweiss Gold and Silver ETF FOF | 0.05% | 0.5% | 0.59% | 1.09% | 0.64% |
| Groww Gold ETF FOF | 0.23% | 0.55% | 0.51% | 1.06% | 0.74% |
| HDFC Gold ETF Fund of Fund | 0.18% | 0.49% | 0.59% | 1.08% | 0.77% |
| ICICI Prudential Regular Gold Savings Fund (FOF) | 0.09% | 0.39% | 0.5% | 0.89% | 0.59% |
| Invesco India Gold ETF Fund of Fund | 0.1% | 0.45% | 0.55% | 1% | 0.65% |
| Kotak Gold Fund | 0.16% | 0.5% | 0.55% | 1.05% | 0.71% |
| LIC MF Gold ETF Fund of Fund | 0.2% | 0.66% | 0.41% | 1.07% | 0.61% |
| Mirae Asset Gold ETF Fund of Fund | 0.17% | 0.69% | 0.34% | 1.03% | 0.51% |
| Motilal Oswal Gold and Silver ETFs Fund of Funds | 0.15% | 0.5% | – | 0.5% | 0.15% |
| Nippon India Gold Savings Fund | 0.14% | 0.35% | 0.82% | 1.17% | 0.96% |
| Quantum Gold Savings Fund | 0.03% | 0.21% | 0.78% | 0.99% | 0.81% |
| SBI Gold Fund | 0.1% | 0.35% | 0.73% | 1.08% | 0.83% |
| Tata Gold ETF Fund of Fund | 0.16% | 0.69% | 0.42% | 1.11% | 0.58% |
| Union Gold ETF Fund of Fund | 0.34% | 0.59% | 0.54% | 1.13% | 0.88% |
| UTI Gold ETF Fund of Fund | 0.19% | 0.56% | 0.5% | 1.06% | 0.69% |
| Zerodha Gold ETF FOF | 0.23% | – | 0.32% | 0.32% | 0.55% |
Source: 1 Finance Research
How Does This Impact You?
The investors of the mutual fund scheme will bear dual recurring expenses of the Scheme and of the underlying scheme. Hence the investor under the scheme may receive lower returns than what they could have received if they had invested directly in the ETF.
What Should You Do?
Most investors are not aware of this additional cost. If you wish to invest in gold, SGBs are a great option, but the government has closed their subscription for now. Comparing the two, we feel investing in gold ETFs makes much more sense from the cost perspective.
Who Can Buy Gold Mutual Funds?
Investors who don’t have demat accounts can opt for gold mutual fund schemes. This is because purchasing gold ETFs requires a demat account, which not all investors have. Additionally, ETFs may not always allow for systematic investment plan (SIP) investments, making mutual funds a more accessible option.
Conclusion:
While gold mutual funds are more accessible for investors without demat accounts and often feature lower expense ratios at the surface level, it is important to be aware of the hidden costs associated such as the dual expense ratio when investing in gold mutual funds. Understand the total expense ratio and how it will impact your overall return from the investment before you start investing in gold mutual funds or ETFs.
