Is an investment in a gold fund better than investing in gold ETF for a time horizon of one to two years?
- Dr C Basu Malik
A gold fund and an ETF are a part of each other. When you invest in a gold fund, the gold fund further invests in a gold ETF. It just provides you with the extra convenience of investing in a mutual fund at an additional fee. Gold funds charge a fee that is over and above the expense of a gold ETF, which, at times, will reduce your return by about half per cent. So, basically, the difference is on the cost front.
But you should not consider gold as an investment. Rather you should consider it as an insurance to your portfolio so that its value will not go down when any calamity happens. If you have a time horizon of seven to eight years and want to buy gold as a fixed allocation of your portfolio, then I think the finest alternative that has been created for Indian investors is Sovereign Gold Bond (SGB). This is because all the other investment avenues, whether it is a gold fund, ETF, jewellery or even digital gold, has a markup. Even in digital gold, there is a markup of about 100-200 rupees on every 10 grams. It means that when you buy it, you will pay 100 rupees more and when you sell it, you will get 100 rupees less.
Issued by the Government of India, SGB has a eight-year tenure. They give you 2.5 per cent additional interest every year over and above the appreciation of the gold price, which is linked to the market price. So, you get 2.5 per cent additional returns instead of expenses. Also, the capital gains on maturity are exempt. So, I would say if you have that long tenure and are looking at gold as a fixed allocation in your portfolio, go for SGBs.