Now Reading: Gold ETFs cost less than Gold FoFs due to layered fees
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Gold ETFs cost less than Gold FoFs due to layered fees
Gold ETFs and Gold Fund of Funds (FoFs) both track domestic gold prices but differ in cost, trading mechanism and accessibility. A Gold ETF is a passive scheme listed on stock exchanges…
Gold ETFs and Gold Fund of Funds (FoFs) both track domestic gold prices but differ in cost, trading mechanism and accessibility. A Gold ETF is a passive scheme listed on stock exchanges that invests directly in physical gold of 99.5% purity. It trades live during market hours, requiring a Demat and trading account, and carries brokerage and exchange fees.
A Gold FoF invests in underlying Gold ETFs rather than physical gold. It is bought and redeemed through mutual fund platforms at end-of-day NAV, and does not need a Demat account. FoFs support systematic investment plans (SIPs).
On annual costs, Gold ETFs have a lower expense ratio. Gold FoFs carry a two-layered cost: the underlying ETF's expense plus the FoF's own management fee, making them more expensive. Investors should weigh expense ratios against needs for intraday liquidity, SIP investing and Demat convenience.
Indian Opinion Analysis
The two-layered cost structure of Gold FoFs can erode returns over long holding periods, especially when gold prices are flat or volatile. Under SEBI's total expense ratio (TER) regulations, the combined cost of an FoF and its underlying ETF is capped but still higher than a direct ETF. For investors with a Demat account and a long-term view, a direct Gold ETF may be more efficient. Those without a Demat account or who prefer SIPs will find FoFs more convenient despite the higher fees. The next decision point for a retail investor is to compare the specific TER disclosed in the scheme information document of each fund before committing.
Source: livemint.com
This brief was synthesised by AI from the source linked above.
