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Investing

Gold ETF vs Gold Mutual Fund: Demat, Costs and Tax Compared

A gold ETF trades on the exchange and needs a demat account. A gold fund of funds buys that ETF for you, allows SIPs and adds its own expense.

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Written by Aarav Sharma

Published 11 October 2026·7 min read

On this page9 sections
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A gold ETF holds physical gold and trades on the stock exchange, so you need a demat account to buy it. A gold mutual fund is usually a fund of funds (FoF) that buys a gold ETF for you. It needs no demat account and allows SIPs, but adds a layer of expense and takes 24 months, not 12, to qualify for long-term tax.

Key differences at a glance

Feature Gold ETF Gold fund of funds
What it holds Gold and gold-related instruments Units of one or more gold ETFs
Account needed Demat and trading account Mutual fund folio (AMC, app or distributor)
Price you get Market price during trading hours End-of-day NAV
SIP Only if your broker offers one Offered by the AMC
Expense cap (base TER) 0.90% a year 0.90% a year, including the ETF’s own expense
Other costs Brokerage, demat charges Exit load for early redemption, where charged
Long-term after 12 months 24 months
Long-term tax 12.5% 12.5%
Short-term tax Slab rate Slab rate

Gold ETFs are large: AMFI data show 26 schemes with ₹1,91,166 crore of assets on 31 August 2026 and ₹2,596.70 crore of net inflows that month. AMFI counts domestic fund-of-funds money inside the underlying schemes, so gold FoF holdings sit within that ETF figure.

How each product holds gold

The SEBI (Mutual Funds) Regulations, 2026 define a gold ETF as a scheme that invests primarily in gold or gold-related instruments. It must keep its money in those, except for cash needed to meet redemptions. It may also use exchange-traded commodity derivatives. Fund houses such as HDFC Mutual Fund say the gold they hold is 99.5% pure and kept with a custodian.

A fund of funds, by definition, invests mainly in other mutual fund schemes. A gold FoF usually buys the same AMC’s gold ETF. For example, Tata Gold ETF Fund of Fund invests in Tata Gold Exchange Traded Fund. Its returns follow the ETF, less the FoF’s own costs and any cash it holds.

If you are weighing ETFs against digital gold instead, see our gold ETF vs digital gold comparison.

Account needed: demat vs mutual fund folio

ETF units must be listed, so you buy and sell them through a broker, like shares. The units sit in your demat account. Small investors cannot deal with the AMC directly. Under SEBI’s mutual fund master circular, direct orders with the AMC must exceed ₹25 crore, except for market makers.

The master circular also gives smaller holders a safety valve. You can redeem up to ₹25 crore directly with the AMC, with no exit load, if any of these happens:

  • The ETF closes more than 1% below its day-end NAV for 7 trading days in a row.
  • No quotes are available on the exchanges for 3 trading days in a row.
  • Total bids average less than half a creation unit daily over 7 trading days.

A gold FoF works like any other mutual fund. You buy it on the AMC’s website, a mutual fund app or through a distributor, using only KYC and a bank account. The AMC buys and sells ETF units for you, and redemptions are paid at NAV.

Costs: expense ratio, brokerage and exit load

Regulation 66 of the 2026 regulations sets these caps on the base expense ratio of open-ended schemes:

ItemDetails
Index funds and ETFs0.90% of daily net assets.
Fund of funds investing in liquid schemes, index funds and ETFs0.90%, including the weighted average expense of the underlying schemes.
FoF’s own chargeno more than twice the weighted average expense of the underlying schemes, within the overall cap.

Statutory levies such as GST and exchange transaction costs are charged outside these caps. Compare each fund’s actual total expense ratio, not the cap. For a FoF, check whether the figure shown includes the ETF’s expense.

ETF investors also pay brokerage and demat charges set by their broker. FoFs often charge a small exit load for quick exits, and the terms vary by fund. Tata Gold ETF Fund of Fund, for instance, charges 0.50% if you redeem within 7 days, according to Tata Mutual Fund’s website.

SIP and minimum investment

With an ETF, the minimum is the market price of one unit plus charges. Some brokers let you set up a recurring ETF purchase, but that is a broker feature. Each instalment is a market trade.

A FoF takes SIPs directly, with minimums set by each scheme. Tata Mutual Fund’s website lists a ₹150 minimum SIP and a ₹5,000 minimum lump sum for its gold FoF. Other fund houses set their own amounts. You can model monthly amounts with our SIP calculator.

Tax on gains

Both products fall in the “other than equity-oriented” group. Neither counts as a specified mutual fund, which since FY 2025-26 means a fund with more than 65% in debt. The difference is the holding period, because ETF units are listed and FoF units are not. For tax year 2026-27 under the Income-tax Act, 2025:

Product Short-term if sold within Short-term tax Long-term tax
Gold ETF (listed) 12 months Your slab rate 12.5%, no indexation
Gold FoF (unlisted) 24 months Your slab rate 12.5%, no indexation

Surcharge and 4% cess are added. If you sell a gold FoF after 13 months, your gain is taxed at your slab rate. The same holding in a gold ETF would qualify for 12.5%. Our guide to tax on gold in India compares these with jewellery and Sovereign Gold Bonds.

Liquidity and tracking

An ETF trades at a market price that can drift from its NAV when trading is thin. SEBI changed the trading rules for ETFs from 7 September 2026:

  • The base price for the daily band is the previous day’s closing price, taken as the volume-weighted average of the last 30 minutes. It was earlier the NAV from two days before.
  • Gold and silver ETFs now start with a 6% price band. After a cooling-off period it widens in 3% steps, with no upper limit.
  • Gold and silver ETFs now go through a pre-open call auction each morning to set the opening price.

These changes aim to keep ETF prices closer to the gold price. Before placing a large order, check the bid-ask spread and the day’s traded volume.

A FoF avoids the spread because you deal at NAV, but you cannot choose the time of day. It also tracks gold a little less closely, since it holds some cash and pays its own costs. For today’s metal price, see our gold rate page, which uses IBJA rates.

Silver ETF vs silver fund

The same structure applies to silver. The regulations define silver ETFs separately, the same price-band and auction rules apply, and silver FoFs invest in silver ETFs. AMFI reported 19 silver ETFs with ₹85,488 crore of assets on 31 August 2026.

Frequently asked questions

Is a gold mutual fund the same as a gold ETF?

No. A gold mutual fund is usually a fund of funds that buys gold ETF units. You hold the fund’s units, not the ETF itself.

Do I need a demat account for a gold fund of funds?

No. You can invest through a mutual fund folio with KYC and a bank account.

Which is cheaper, a gold ETF or a gold FoF?

Both have a 0.90% cap on base expenses, but the FoF’s cap includes the ETF’s expense. Compare actual expense ratios, plus brokerage for the ETF and any exit load for the FoF.

When do gold ETF gains become long-term?

After 12 months, because the units are listed. They are then taxed at 12.5% without indexation.

When do gold fund of funds gains become long-term?

After 24 months, because the units are not listed. Gains within that period are taxed at your slab rate.

Can I do a SIP in a gold ETF?

Only if your broker offers recurring ETF orders. A gold FoF offers SIPs directly through the AMC.

Can I redeem gold ETF units with the fund house?

Only for orders above ₹25 crore, unless the ETF trades well below NAV or has no liquidity for several days. In those cases you can redeem up to ₹25 crore directly, with no exit load.

Sources

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