Difference between Gold ETF Fund and Gold Savings Fund?

 Gold ETF

Gold ETF lets you own gold in your demat account. Each unit of the ETF lets the investor own 1gm of gold without physically owning it.

Gold ETFs are held in demat (electronic form) whose units are listed on stock exchanges and can be traded on a stock exchange just like buying and selling stocks.
  

Gold ETFs are exchange traded funds that are meant to track closely the price of physical gold. 

Investing in a gold ETF provides the benefit of liquidity and marketability which are a limitation of owning physical gold. 

Gold ETF is liquid because you can trade in it at any time during market hours. 

Gold ETF is marketable because you can trade any amount in it just like a normal stock including short selling and buying on margin. 

Owning gold ETF also is cheaper than owning physical gold because it has no cost of carry (the cost of storing physical gold).

Gold Savings Fund (FoF) 

Gold Savings funds are Gold Fund of funds

Gold savings Fund are open ended schemes which invest in Gold ETF fund of same AMC.

The scheme is suitable for investors who seek exposure to physical gold as an investment and an asset class to diversify their portfolio. It is also suitable to those who find the investments in Gold ETF's to be cumbersome for want of trading and demat account for investing on the exchanges.

It is also suitable to small investors who cannot invest in lot of creation unit size of a Gold ETF or those habituated to dealing with mutual funds directly.

 

How Gold ETF is Different from Gold Savings Fund

1. Demat Account

Having demat is must if you want to invest in gold ETF funds, where as for Gold Fund of fund demat is not must, you can invest without having demat account.

2. SIP option

 In  Gold ETF fund some service providers(broking houses) give the facility of SIP in Gold ETF Fund, Like example SIP in gold ETF is available in ICICI direct if you want to start sip in Gold ETF you can go ahead and use this sip option.

But the point here to note that it depend on number of units alloted  and not on amount of SIP decided.

Like example: you decided sip of Rs.3000 in gold etf fund and on SIP date NAV of gold ETF was Rs. 2100 so only one unit will be alloted to you and (NAV+brokerage charge) will get deducted and not Rs. 3000

 Example (charges we pay in Gold ETF fund)

Where as in Gold Savings Fund
Fixed amount sip option is available.

If you planned Rs. 1000 in Gold Savings Fund, so on SIP date Rs.1000 will get deducted and units will be alloted accordingly.

Statement showing units alloted on sip date 

 3. Charges:

 When we invest in Gold ETF fund the broker charge  1% on Nav + Stamp duty and other charges, where as when we invest in gold Savings fund no charges deducted on entry (no entry load)

For Gold ETF we maintain demat account, we pay Rs. 500 as annual charges, if one is opening demat account 0nly for Gold ETF then should also consider the annual maintenance charges for DP account.

Where as when we invest in Gold Savings fund entry load is nil, exit load is charged if applicable for particular scheme if withdrawn before that period.

Then which is considered best in terms of less charges:

Gold savings fund is fund of fund, as said that charges will be more compare to gold ETF fund as we pay ( ETF charges + Fund Recurring charges),

 Example:
 If GOLD ETF charges are 1%, and if  we invest in gold savings fund the charges  will be ETF charges +fund charges, if fund charges are 0.50% so Gold savings fund charges will be (1.5%)


In Gold ETF:  We pay Annual  Maintenance for Demat account, Brokerage charges, Transaction and  Delivery charges.

In  Gold Savings we mainly pay Recurring charges.

So considering all charges , i feel both are at par, i don't find Gold ETF cheaper as when i did the calculation i actually paid more than 1.5% when investing in Gold  ETF, plus no fixed amount we can consider in gold ETF.


How 
If demat account is opened only for investing in gold ETF and i pay annual demat charges of Rs. 500 so monthly SIP charges will be Rs. 41.66 on Gold ETF fund
Plus 1 % on NAV on Purchase, after doing all calculation work i don't think Gold ETF is cheaper compare to Gold Savings Fund.



 

Summary:  This is the cost of convenience that one will pay when investing in gold savings fund fund instead of paying annual maintenance charges for a demat account , delivery brokerages charges, transaction charges incurred for investing through the dematerialized mode.

 

Investment in Gold ETF comes under Section 80C Tax rebates?

Investment is Gold ETF fund or Gold Savings fund (fund of fund)does not qualify for tax benefit under section 80C of Income tax Act.

Now  question arise which mutual fund schemes gets tax benefit(deduction under section 80C)??

Deduction under 80C is available in following mutual fund schemes:

1. ELSS Funds  
Equity Linked Savings Schemes will qualify for tax benefit under  Section 80C of Income Tax Act. More so  when you invest in ELSS Scheme, amount is locked in for 3 Full years, even when you do SIP in ELSS Fund each SIP and (dividend which is reinvested, if you opted for dividend reinvestment option)  is also locked  in  for 3 years.

How Lock in Period works in ELSS fund is explained in this link

Explain Lock in Period if investment is in ELSS Funds Through SIP (Systematic Investment Plan)

2. Pension Plans of mutual funds

 Earlier Pension Plans schemes of mutual fund qualified for a tax rebate under section 88 of the Income Tax Act 1961. From 1st April 2005, in terms of Section 80C(7) of the Act, a pension fund referred to u/s 88 shall be eligible for deduction u/s 80C of the Income Tax Act, 1961. All Subscription in Pension Plan is locked in for 3 years.

So when you invest in ELSS funds or Pension funds of mutual funds, you qualify for deduction under section 80C.

Now your second question: how gold ETF funds are taxed??

The tax system for gold ETFs is similar to that of non-equity mutual funds like debt funds. When computing income tax, gold exchange traded funds are treated as debt funds. 

   

Long Term Capital Gains (Hold for more than a year)

Arising from the sale of  Gold ETF or Gold Savings Fund (fund of fund)

 

10% on the capital gain without the benefit of indexation.

20% on the capital gain after including the impact of indexation.

Whichever is lower, on the profits made?

So, 11.33 per cent without indexation or 22.66 per cent with indexation which ever is lower

(The investor is also liable to pay the applicable surcharge, if any and other cess on the tax.)

Short Term Capital Gains (Hold for less than a year)

 Arising from the sale of Gold ETF or Gold Savings Fund (fund of fund)

The short-term capital gain on debt schemes is clubbed with the income (added to your annual income) of the investor and is taxed at the slab rate.

The investor is also liable to pay the applicable surcharge, if any and other cess on the tax.