Gold ETFs function as passive mutual fund schemes that invest directly in physical gold of 99.5% purity, regulated by SEBI and listed on exchanges. According to reports from Livemint, these units mirror real-time domestic gold prices and trade like equities during market hours, allowing investors to capitalize on intraday price movements. In contrast, Gold Fund of Funds (FoF) are mutual fund schemes that invest assets into underlying Gold ETFs rather than purchasing physical gold directly. As reported by Livemint, Gold FoFs are managed by professional asset management companies and allow individuals to gain gold exposure through standard mutual fund channels without requiring a Demat account. Recent developments include the launch of Zerodha Gold ETF (GOLDCASE), which tracks physical gold performance and offers investors exposure without the hassle of owning, storing, or securing physical gold.
The primary operational difference lies in how investors buy, sell and hold their investments. According to Livemint, Gold ETFs are bought and sold on stock exchanges during market hours, while Gold FoFs are purchased or redeemed through mutual fund platforms. Gold ETFs trade at market prices that can change throughout the trading session, requiring an active Demat account and applicable brokerage and exchange fees. Gold FoFs, being mutual fund schemes, issue and redeem units based on net asset value (NAV) calculated at the end of each trading day, making them suitable for regular, automated investments like SIPs. The Zerodha Gold ETF (GOLDCASE) is available on all major stock broking platforms with a minimum investment amount as low as ₹10, making it accessible to retail investors.
Gold ETFs offer intraday trading flexibility because they can be bought or sold during exchange hours, as reported by Livemint. However, Gold FoFs are redeemed at applicable NAV rather than being traded continuously on an exchange. The report indicates that traditional Gold ETF investing does not offer SIPs in the same manner as mutual funds, while Gold FoFs can support systematic investment plans, allowing investors to invest smaller amounts at regular intervals. Gold ETFs generally have lower expense ratios compared to Gold FoFs, which carry additional costs due to the two-layered structure involving both underlying ETF expenses and FoF management fees. The Zerodha Gold ETF has an expense ratio of 0.3% as of September 25, 2026, and no exit load applicable to investors.
Latest data from the World Gold Council (WGC) shows that gold ETFs recorded their 10th consecutive week of inflows, with $1.72 billion invested against $1.59 billion in outflows last week. However, this represents a challenging environment as gold prices have declined over 6% in the past month and over 4% in the past week, with gold trading down 3% to around $4,150 per ounce on Monday. According to The Hindu BusinessLine, US investors led the exits with $683 million in redemptions, while UK investors led inflows with $438 million. The decline is attributed to a firmer dollar, 10-year Treasury yields near 5.50%, and hot flash PMI raising bets on another Fed hike in October. Despite the recent volatility, year-to-date investments show Europeans and Asians at par with $16.56 million each, with UK investors leading at $9.40 billion followed by China at $9.33 billion.
From a pure management fee perspective, Gold FoFs cost more on an ongoing annual basis due to their two-layered cost structure, according to Livemint. Gold FoFs involve both the expense ratio of the underlying Gold ETF plus additional management expenses of the FoF layer. The report suggests that investors comparing the two should consider not only expense ratios but also their specific needs for intraday liquidity, SIP investing, Demat convenience, and overall investment horizon. The choice between Gold ETFs and Gold FoFs ultimately depends on individual investment objectives, liquidity requirements, and the investor's preference for direct market participation versus mutual fund convenience. Taxation on Zerodha Gold ETF gains varies by holding period: short-term gains are taxed as per the investor's tax slab plus 4% cess and surcharge, while long-term gains are taxed at 12.5% plus applicable surcharge and 4% cess.
