Gold funds vs ETFs: Where should mutual fund investors place their bets this Akshaya Tritiya?

In India, buying gold goes beyond just investment—it is a long-standing tradition linked to prosperity and financial security. Many people choose to invest in gold during auspicious occasions like Akshaya Tritiya, but when it comes to investing through the mutual fund route, they are often faced with two options—Gold ETFs and Gold Funds.

While both options offer exposure to gold without the hassle of physical storage, the availability of two similar choices often leaves investors confused about which one to pick for their portfolio allocation.

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Since the last Akshaya Tritiya celebrated on April 30, 2025, gold funds have delivered upto 58% return whereas gold ETFs have delivered 61% return, an analysis by ETMutualFunds showed.

Market experts say it is less about performance by gold funds and gold ETFs and more about the structure of these two.

Sagar Shinde, VP Research at Fisdom, shared with ETMutualFunds that gold ETFs tend to be more cost-efficient and offer better price tracking, while gold funds provide ease of access for investors who may not have a demat account so the preference should align with the investor’s mode of investing and cost sensitivity.
Bharath Rathore, Executive Director, Anand Rathi Wealth Limited told ETMutualFunds similar opinion. Rathore said that gold ETFs are more cost-efficient as they directly track gold prices, are more liquid, and have lower expense ratio with no additional layer of costs whereas gold funds (FOFs) are more expensive due to their FoF structure but give ease of access as they do not require investors to have a demat account.
He further said that from a tax perspective, Gold ETFs qualify for long-term capital gains after 12 months, while gold funds require 24 months, making ETFs more tax-efficient so for investors looking to invest in gold, they can opt for gold ETFs but they should view gold as a hedge and not a core allocation in the portfolio.

Performance of gold funds and ETFs since last Akshaya Tritiya

As gold funds delivered upto 58% return (As of April 16, 2026), the average return offered by them was 57.35% from April 30, 2025. SBI Gold offered the highest return of 58.40% in the said time period, followed by Quantum Gold Saving Fund which gave 58.36% return. LIC MF Gold ETF FoF was the last one in the list to deliver around 55.41% return.

Gold ETFs delivered upto 61% return (As of April 16, 2026), the average return was 59.63% in the same period. Tata Gold ETF gave the highest return of 60.59% since last Akshaya Tritiya, followed by Aditya Birla SL Gold ETF which gave 60.27% return. Quantum Gold Fund ETF was the last one in the list which gave 58.55% return.

Where should first time and existing investors bet?

Rathore said for first time investors who want exposure to gold, they can opt for gold ETFs as they provide direct, low-cost exposure to gold prices with better liquidity and tax efficiency, if they have regular income, they can do an SIP, if they have funds available then they can go ahead with a lumpsum investment and stagger it across 6-8 weeks.

However it is important to understand that though gold has seen a sharp rally recently, it shows cyclicality where periods of strong performance are often followed by low and even negative returns so investors should ensure that their main allocation remains with equity which is the primary long term wealth generator and gold can replace the debt portion of the portfolio, with an allocation within 20%, Rathore further said.

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Shinde said that for first-time investors, gold funds provide a simpler entry point as they do not require a demat account whereas for existing investors, given the sharp run-up in gold prices, a staggered approach through SIP or systematic allocation is more prudent than a lump sum, as it helps mitigate timing risks.

Gold funds vs ETFs : How do they differ?

Gold funds are mutual funds that invest in Gold ETFs or directly in companies involved in mining and production of gold. These are open-ended funds, and the returns are linked to the performance of gold prices. You don’t need a demat account to invest in gold funds, and you can do so directly through mutual fund platforms. These funds operate at the day-end NAV and offer convenience of SIP investments with a minimum amount of Rs 500.

Gold ETFs are exchange-traded funds that track the price of physical gold allowing real-time buying and selling to investors during market hours, and with a minimum investment of one unit. Each unit of a Gold ETF is backed by a specific quantity of gold, usually equivalent to one gram. They are listed on stock exchanges, and you need a demat and trading account to buy and sell them.

In the case of gold ETF, there are brokerage fees and demat charges. On the other hand, gold ETF FoF there may be exit loads but there are no demat charges.

Taxation: Gold ETFs and gold funds, both now fall under a similar taxation framework post the recent changes and long-term capital gains are taxed at 12.5% without indexation after a holding period (12 months for ETFs and 24 months for gold funds), while short-term gains are taxed as per the investor’s slab.

Which fits better for long term investors?

Shinde said that from an investment perspective, financial gold remains superior to physical gold due to the absence of making charges, storage concerns, and pricing inefficiencies and as both now fall under a similar taxation framework post the recent changes, the decision tilts more towards structure—ETFs offer better cost efficiency and transparency, making them more suitable for long-term investors, whereas gold funds remain a simpler route for those prioritizing ease of execution.

While mentioning that Indian households prefer physical gold and how gold ETFs are a better option from a financial perspective, Rathore said that for long-term investors, gold ETFs are the most efficient route. However, we can see that since 1990 on a 3-year rolling basis, gold has delivered returns of around 10% vs around 12.6% for equity. Hence, it works best as a diversifier, within 10–20% allocation.

According to Satish Dondapati, Fund Manager – ETF, Kotak Mahindra AMC, Gold prices have fallen around 8–10% recently, which may seem surprising given ongoing global tensions.

He further said that in the short term, gold prices may be volatile, especially if inflation rises, mainly due to higher oil prices, which generally supports gold. However, higher inflation also forces central banks to keep interest rates high, which negatively impacts gold.

Looking at the long term, the outlook for gold remains positive. Central banks across the world are increasing their gold holdings to reduce dependence on the US dollar, he also said.

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Rathore said the outlook for gold for the next 12-18 months proves to be volatile and performance might be range bound. The 2025 rally, where investors saw returns greater than 70%, was mainly driven by global uncertainty, central bank buying and safe haven demand, and not backed by fundamentals. However, data shows that such high-return years have historically been followed by subdued or even negative returns, highlighting gold’s cyclical nature.

He also said that going forward, gold’s performance will depend on interest rates, inflation, and geopolitical developments. Higher interest rates remain a key headwind, as gold does not generate income.

Shinde said that the outlook for gold remains constructive, supported by factors such as elevated global debt levels, continued central bank buying, and persistent geopolitical uncertainties and these structural drivers continue to support demand for gold as a hedge. However, after a strong rally, the near-term trajectory may see phases of consolidation and volatility rather than a one-way move.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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