Gold ETF vs Index Mutual Fund: Where should you put your money; find out which one gives better returns and why

Index Mutual Funds give around 10.5 to 11 per cent returns in the long term while in Gold ETF, one can expect to get around 12 per cent returns in long-term.

Index Mutual Fund is directly linked to index performance while Gold ETF is linked to gold performance in the commodity market. Photo: Pixbay/PTI

Gold ETF vs Index Mutual Fund: Mutual Funds investment is one of the popular investment options among the middle class, especially the salaried ones. Reason for this rising popularity is its better returns in long-term and ease of investment where even a person in his or her nascent phase of its career can opt for it through SIP option. But, while opting for the Mutual Fund options, people get confused as it provides a huge portfolio of investment and various Mutual Fund houses promise various returns. So, some people can get fed up with their fund managers' performance in the Mutual Fund markets. for such investors, Gold ETF or Index Mutual Funds are emerging as a better option as the external effect is not possible in these Mutual Funds investment and they are completely linked to the performance of the stock market index and the commodity market performance.

Speaking on the similarities between the Index Mutual Funds and Gold ETF Kartik Jhaveri, Director — Wealth Management at Transcend Consultancy said, "Index Mutual Funds are those funds where the Mutual Fund houses make a bunch of some stocks from the same index like Nifty, Sensex, BSE, NSE etc. An index Fund performance is directly linked to the performance of the stock index the plan belongs. Similarly, in Gold ETF, the mutual fund plan is directly linked to the gold price rise or fall in the commodity market."

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Asked about the return in both mutual funds Kartik Jhaveri of Transcend Consultancy said, "Index Mutual Funds give around 10.5 to 11 per cent returns in long term means more than 10 years of investment while in Gold ETF, one can expect to get around 12 per cent may be more return in long-term."

Speaking on the reason for better returns in Gold ETF Jitendra Solanki, a SEBI registered investment expert said, "In Gold ETF, fund managers or asset managers have a role to play while in Index Mutual Funds, it is completely linked to the index performance as there are no fund managers involved in it." He said that Gold ETF is related to the gold performance at the commodity market but fund managers involved there play a key role to minimise the loss of the fund when the market is in downtrends."

However, Kartik Jhaveri of Transcend Consultancy said that commodity and stock market are two different modes of investment citing, "It is advisable for an investor to invest in Gold ETF to an extent he or she wants to invest in gold as the taxes levied for long-term gold investment is same in Gold ETF and physical gold. He or she should diversify its portfolio as an index may give much more than it generally gives in a particular period of time as we witnessed in 2010-11 and 2014-16 period."

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