Many visitors ask me where to invest for Gold – Gold ETF or Gold mutual fund and which is the best scheme name. First of all, you must understand that if you've a demat account, it's better to invest in Gold ETF since brokerage charges will be much lower as compared to expense ratio of Gold mutual fund.
To make it better view, here is the chart showing return of different Gold mutual funds.
Source: moneycontrol.com – returns as on Nov 1, 2012.
As you can see from the above table, there is hardly difference in returns in different time frame. The reason is simple. All the AMCs are investing in single metal – Gold. So, you can invest in any Gold mutual fund of your choice.
Now, coming to Gold ETF chart.
Source: moneycontrol.com – returns as on Nov 1, 2012
You can click on above image to open in new tab.
Here also, the returns over different time frame almost same. There is hardly any difference.
Here you need to remember one important point. Invest in those Gold ETF, where there is high liquidity; otherwise it will be difficult for you to sell ETFs later. SBI Gold ETF (SBIGETS), Reliance Gold ETF (R* shares), HDFC Gold ETF can be good choice. You can yourself check the total traded volume in these ETFs from exchange website and filter out the iliquid ones.
The summary is invest in any Gold mutual fund or Gold ETF. The returns are not much different. The difference is how you invest. I would suggest SIP way to invest in Gold. For Gold mutual funds, you need to fill up SIP form. For Gold ETF, you need to contact your share broker. Now-a-days, many share broker (e.g. Sharekhan) allows SIP in shares (including Gold ETF) also.
Normally, you should have 15%-20% of your total portfolio in Gold. You can increase in further also as per your portfolio.