Gold ETF or Gold Mutual Fund: What Should You Choose in 2026?
Consider a 36-year-old, Mumbai-based, senior consultant who has built quite a diverse portfolio over the last decade or so. His investments include mutual funds, some debt funds, and a small exposure to gold. However, while reviewing his investments in 2026, he noticed that his gold allocation was split between a gold ETF bought years ago through a demat account and a gold mutual fund added later through SIPs.
Both investments tracked gold prices and showed similar long-term experience. Still, the holding experience was different:
- The ETF was market and timing-dependent and required access to a demat account.
- The mutual fund ran quietly in the background, gathering investments through SIPs.
The similar market performance of the two funds often confuses investors, and judging funds by returns alone isn’t enough to make the right decision. Gold ETFs and gold mutual funds serve two distinct groups of investors with different portfolio needs. This blog will help you understand that difference, so that you can choose based on your portfolio structure, needs, and long-term goals, not just surface-level comparisons.
Understanding Gold as an Investment Option in 2026
Last year, gold prices were at an all-time high, with spot prices increasing by 50% in almost 12 months. With such a meteoric rise, gold has changed from a crisis hedge to a core strategic asset class in investor portfolios. Although it doesn’t generate earnings like equities or predictable cash flows like debt funds, it is a major diversifier and downside protector during periods of equity stress or macro uncertainty.
Indian investors use gold as a portfolio stabiliser, helping maintain balance as equity and debt funds move with market volatility. Over longer holding periods, gold has shown a low correlation with equities, making it useful during market drawdowns.
This is why a unified personal finance management commonly recommends gold as a strategic allocation in investor portfolios and not a simple tradable asset. So, if you’re considering a choice between a gold ETF or gold mutual funds, make sure to align your intent for strategic long-term balance instead of short-term performance chases.
What Is a Gold ETF and How Does It Work?
A Gold Exchange-Traded Fund (ETF) is a fund that tracks the domestic price of physical gold. A fixed quantity of gold is typically represented per unit and is backed by custodian-held physical gold. Gold ETF prices fluctuate during the day, depending on physical gold prices and market demand. These assets are listed on the National Stock Exchange and are traded like shares during market hours.
To buy gold ETFs, you require:
- A demat account
- A trading account
- PAN/KYC compliance
Generally, gold ETFs have lower expense ratios compared to gold mutual funds, with higher liquidity allowing easier entry and exit. These assets are best suited for demat-ready investors with experience in active market tracking and who prefer direct exposure with minimal layers. If you are comparing gold MFs vs gold ETFs, this is where you should begin calculating your decision.
What Is a Gold Mutual Fund?
A gold mutual fund can be defined as a fund of funds that prioritises investing in gold ETFs. Here’s what you need to know about this asset class, before picking it as an investment option:
- Funds hold underlying ETF units that investors can access without a demat account.
- Investments can be made via a lump sum or SIP, with transactions processed at NAV instead of real-time prices.
- Liquidity is managed by the fund house instead of the NSE.
Gold mutual funds add an extra layer between the investor and the gold, which results in a higher expense ratio compared to gold ETFs. On the bright side, investing in these funds is operationally simpler, especially for long-term investors who prefer gold-based investments.
Gold ETF vs Gold Mutual Fund: Key Differences Explained
The difference between gold ETFs and gold mutual funds lies less in gold exposure and more in structure and investor experience. For better understanding, here’s a comparison overview:
| Aspect | Gold ETFs | Gold Mutual Funds |
| Trading | Traded on stock exchanges throughout market hours, like stocks with real-time pricing | Bought/sold directly from the fund company at the end-of-day NAV (Net Asset Value) |
| Pricing | Market price fluctuates during trading hours; may trade at a premium/discount to NAV | Single price per day based on NAV calculated after market close |
| Minimum Investment | Cost of one share | Varies by fund |
| Expense Ratios | Generally lower (often 0.25%-0.50% annually) | Typically higher (often 0.5%-1.5%+ annually) |
| Purchase Method | Requires a demat account, a trading account, and can be bought like stocks, with proper KYC compliance. | Can be purchased directly from the fund company or through a brokerage |
| Liquidity | High liquidity; can be sold instantly during market hours | Less liquid; redemption requests processed at day's end |
| Management Style | Passively managed; tracks gold price or gold-related index | Can be actively or passively managed; some offer active fund manager selection |
| Tax Treatment | May be more tax-efficient due to structure; collectibles tax rate may apply | Potentially less tax-efficient; capital gains distributions possible |
| Transparency | Holdings are disclosed daily | Holdings are typically disclosed monthly or quarterly |
| Best For | Active traders and investors looking for flexibility and lower costs | Long-term investors who are comfortable with end-of-day pricing, and SIP investors |
Gold ETF or Gold Mutual Fund: Which Is Better for You?
Choosing between gold ETFs and gold mutual funds comes down to your profile as an investor. Gold ETFs make sense if you’re an investor who:
- Already uses demat and trading accounts with compliant KYC
- Prefers lower costs
- Wants intraday liquidity
- Is comfortable and experienced in tracking market prices.
And if your profile doesn’t match this checklist, Gold Mutual Funds will probably be better for your portfolio. Especially, if you:
- Already invested through SIPs
- Don’t want the complexity of demat and trading accounts
- Prefer NAV-based investing
- View gold as a long-term allocation in your portfolio
Gold ETFs and mutual funds both track gold prices; asset quality is not the issue here. The difference in returns usually stems from costs and tracking efficiency. So, before locking in on an asset, double-check your investment profile and decide which decision aligns with your behaviour and discipline.
Taxation on Gold ETF vs Gold Mutual Fund
Gold ETFs and gold mutual funds are taxed similarly, with a slight difference between long-term and short-term taxation. This is because both ultimately derive their prices from physical gold.
Capital gains from gold are taxed based on the holding period. Short-term gains are taxed as per slab rates, whereas long-term gains are taxed at a concessional rate post indexation benefits, as per current regulations under SEBI. While picking one out of the two assets, it is best not to consider taxation as a dominant factor, since structural stability matters more than long holding periods.
Common Mistakes Investors Make While Investing in Gold Funds
As gold prices surge, investors, out of fear of missing out, are tempted to rapidly invest in gold without reviewing the possible mistakes they might make in the process. Here are a few such mistakes:
1. Over-allocating due to recency bias
Following price surges like in 2025, people usually allocate almost half of their portfolio to gold exposure, assuming that this will generate higher revenue in the long run. However, this overexposure can lead to significant underperformance. Ideally, a 5-15% exposure is enough gold exposure for a single portfolio.
2. Chasing Digital Gold investments
Digital gold, offered by certain UPI apps, has become a popular investment option, especially given its low entry barrier of INR 1. Investors usually mistake it for being as safe as ETFs or mutual funds. In reality, SEBI doesn’t govern or regulate these assets, so there is no investor protection framework present to help if a platform faces operational or financial distress.
3. Using Gold for Short-Term Trading
Investors who buy gold funds to profit from a 2-week geopolitical headline, such as events in the Middle East, often end up losing out on gains. Gold prices in 2026 are highly volatile. Between brokerage fees for ETFs or exit loads (usually 1%) for mutual funds, frequent switching often eats up any small gains. Gold should be viewed as portfolio insurance that you hold for years, not weeks.
Other than gold ETFs and mutual funds, investors should also carefully invest in Sovereign Gold Bonds (SGBs) and keep taxation rules in mind before doing so. Frequent non-strategic switching between ETFs and mutual funds can also hurt outcomes. Which is why, before taking steps towards gold exposure, it is best to consult with advisors or research governance rules and how gold assets usually work under regulations. This way, your portfolio stays safe, and you can expect long-term gains with consistent investments.
How Novelty Wealth Helps You Choose the Right Gold Investment
When viewed at a portfolio level, choosing between gold products becomes much easier. Novelty Wealth does exactly that, focusing investors' attention on gold exposure as a part of a consolidated view beside equity and debt funds.
By tracking gold exposure as part of overall asset allocation, Novelty Wealth enables investors to make disciplined decisions without reacting to short-term price movements. So instead of comparing each product in isolation, you can determine whether gold allocation aligns with your long-term goals and risk tolerance. Like this, you can clear out any confusion between gold ETF and gold mutual fund choices without any heavy calculations or speculations.
Conclusion
Gold ETFs and gold mutual funds both provide exposure to gold, but they serve different investor needs. Understanding structure, access, and behaviour is more important than chasing returns. The decision between the gold ETF vs mutual fund is best made in the context of long-term goals and portfolio balance. With the right guidance and a clear portfolio view from platforms like Novelty Wealth, gold can play a meaningful role in long-term wealth creation without unnecessary complexity.