Gold ETF vs Gold Mutual Fund vs Sovereign Bonds


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Gold Exchange Trade Fund

Gold ETFs Gold Exchange Trade Fund are open-ended mutual fund schemes that are based on the fluctuating cost of gold. However, physical gold does not generate any income. Moreover, the making charges of physical gold are high. Gold ETFs give investors exposure to the Gold Market and they are an excellent choice of investment for investors looking to beat inflation in the long run.

On top of this, gold is an asset that is less for the time when compared to equity shares.

Gold ETFs are suitable for those investors who are looking to diversify their portfolios with exposure to the gold market. It is a low-risk investment that suits conservative investors. The amount of money that is invested goes towards standard Gold Bullion of 99.5% purity. Individuals who do not want to spend money on storage and additional taxes as in the case of physical gold can also offer gold ETFs.

Some of the benefits of holding Gold ETFs are:

  1. Flexibility
  2. Liquidity
  3. Smaller denomination
  4. Easier to participate in the gold market
  5. Easier to hold for long
  6. Tax-efficiency
  7. Easier to transact
  8. Cost-effective

Gold Mutual Funds

Gold funds are one of the latest ways to invest in Gold as an asset class without having to hold it in the physical form. They are open-ended funds with investments in units of a gold exchange-traded fund or ETFs. The main motive of gold funds is to create wealth by making use of the potential of gold as a commodity. It is very suitable for those investors who have a desire to take exposure to Gold. It is convenient to invest in gold funds instead of holding the commodity physically.

Each gold fund has a fund manager who takes investments that are according to the objective of the fund. The returns of a gold fund may closely resemble that of a gold ETF. Moreover, the net asset value of the fund may also be influenced by the overall price movement of gold in the market.

For an investor, you have to know the significant differences between gold ETFs and gold funds. There are distinguishable in the following ways:

  • Investment mode

Similar to equity shares, you can purchase units of gold ETF from the stock exchange. However, you need to open a Demat account to invest in this fund.

Similar to other mutual funds, units of gold funds can be bought from the respective fund house without the requirement of a Demat account

  • Pricing

Units of gold funds are priced differently as compared to Gold ETFs. The price of gold fund units is seen by way of Net Asset Value which is disclosed at the end of the trading hours. On the other hand, as and when gold ETFs are listed on the stock exchange you can get real-time updates about their price.

Sovereign bonds

A sovereign bond is a kind of debt security that is issued by the national government in order to raise money for financing government programs, paying down old debt, paying interest on current debt and any other government spending needs.

These kinds of bonds can be dominated by a foreign currency or the government’s domestic currency. It is a source of government financing alongside tax revenue.

Just like any other bond, sovereign debt entitles owners to periodic interest payments from the issuer which is the government as well as to the repayment of the face value of the bond when its term matures.

Unlike other bonds whose interest rate is paid or depends on the risk profile of the issuer, in the case of sovereign bonds, The Year will be higher for countries seen at a higher risk of default. The investors can consider the economic profile of the country, the exchange rate and politics to estimate the likelihood of a default on sovereign debt obligations.

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