Gold ETF vs Gold Mutual Fund - Which is Better for NRIs

Every week, someone in our WhatsApp community asks the same question: "Should I buy Gold ETF or Gold Mutual Fund?"

The confusion is understandable. Both track gold prices. Both are paperless. Both let you avoid the hassles of physical gold. Yet they work differently, cost differently, and are taxed differently.

At Belong, we've helped hundreds of NRIs navigate this decision. The right choice depends on whether you want real-time trading or SIP convenience, whether you have a demat account, and how long you plan to hold.

This guide breaks down every difference that matters. By the end, you'll know exactly which option fits your situation.

Why NRIs Are Choosing Digital Gold Over Physical

Indians have a deep connection with gold. But for NRIs, physical gold creates problems.

You can't easily buy 24-karat gold in Dubai and bring it to India. Storage is expensive. Purity is a concern. And when you want to sell, you lose money on making charges and GST.

Gold ETFs and Gold Mutual Funds solve these problems. Both give you exposure to 99.5% pure gold without the headaches of storage, security, or purity verification.

According to the World Gold Council, Indian households own gold worth close to $2 trillion. But the shift from physical to digital gold is accelerating. Gold ETF inflows hit 63 tons globally between June and December 2024.

👉 Tip: Financial advisors typically recommend keeping 5-10% of your portfolio in gold. It acts as a hedge against equity market volatility and currency depreciation.

What is a Gold ETF?

A Gold Exchange-Traded Fund (ETF) is a security that trades on stock exchanges, just like shares. Each unit represents a fixed quantity of gold, typically 1 gram of 99.5% pure physical gold.

When you buy a Gold ETF unit, the fund house holds actual gold bullion in secure vaults on your behalf. The price of your ETF unit moves in tandem with domestic gold prices.

Think of it like buying digital gold that you can trade in real-time during market hours.

How Gold ETFs Work:

1. Fund house purchases physical gold and stores it with a custodian
2. Units are issued against this gold
3. Units are listed and traded on NSE/BSE
4. You buy/sell through your trading account during market hours
5. Settlement happens in T+1 days

Popular Gold ETFs in India:

• Nippon India ETF Gold BeES (oldest, most liquid)
• HDFC Gold ETF
• SBI Gold ETF
• ICICI Prudential Gold ETF
• Kotak Gold ETF

What is a Gold Mutual Fund?

A Gold Mutual Fund is a Fund of Funds (FoF) that invests in Gold ETFs. It doesn't directly hold physical gold. Instead, it buys units of Gold ETFs as its underlying asset.

When you invest in a Gold Mutual Fund, the fund manager uses your money to purchase Gold ETF units. Your returns mirror the Gold ETF's performance, minus the additional management fee.

Think of it as an indirect route to gold, with the convenience of mutual fund features like SIP.

How Gold Mutual Funds Work:

1. You invest via SIP or lump sum through the AMC
2. Fund manager buys Gold ETF units with pooled money
3. NAV is calculated at end of day
4. You can redeem through the fund house
5. Settlement takes T+3 business days

Popular Gold Mutual Funds in India:

• ICICI Prudential Gold Savings Fund
• HDFC Gold Fund
• Nippon India Gold Savings Fund
• SBI Gold Fund
• Kotak Gold Fund

👉 Tip: Gold Mutual Funds are "Fund of Funds." This means you pay two layers of fees: the Gold Mutual Fund's expense ratio plus the underlying Gold ETF's expense ratio.

Gold ETF vs Gold Mutual Fund: Key Differences

Here's a side-by-side comparison:

Source: SEBI and AMC scheme documents

Cost Comparison: Which is Cheaper?

Cost matters. Even a 0.5% difference compounds significantly over 10-20 years.

Gold ETF Costs

Gold ETFs have lower expense ratios because they're passively managed. The fund simply holds gold; there's no active decision-making.

• Expense ratio: 0.20% to 0.60% annually
• Brokerage: ₹10-20 per transaction (depends on broker)
• Demat charges: ₹300-500 annually
• No exit load

Top performers by expense ratio (Angel One, Sep 2025):

Gold Mutual Fund Costs

Gold Mutual Funds have higher expense ratios. You're paying for the mutual fund's management fee plus the underlying ETF's fee.

• Expense ratio: 0.60% to 1.20% annually
• No brokerage or demat charges
• Exit load: 0-2% if redeemed early (typically within 1 year)

Real Impact on Returns

Let's say gold returns 10% annually. Here's how costs affect your ₹10 lakh investment over 10 years:

The difference: ₹1.11 lakh over 10 years on just ₹10 lakh.

👉 Tip: If you're investing a large lump sum for the long term, Gold ETFs make more sense due to lower costs. For small monthly SIPs, Gold Mutual Funds are more practical.

Returns Comparison: 2024-2025 Performance

Gold has delivered remarkable returns recently. Here's how both options performed:

Gold ETF Returns (as of December 2025)

*Since November 2023. Source: Bajaj Finserv

Gold Mutual Fund Returns (as of December 2025)

Source: AMFI

Why the Difference?

Gold ETFs consistently outperform Gold Mutual Funds by 0.3-0.5% annually. The reason? Lower expense ratios and direct exposure to gold without the additional layer of fund management.

Over 5-10 years, this difference compounds. On ₹1 crore, you could lose ₹3-5 lakh to the mutual fund's higher costs.

Taxation for NRIs: Updated 2025 Rules

The Union Budget 2024 changed gold taxation significantly. Here's what NRIs need to know:

Gold ETF Taxation

Holding Period for LTCG: 12 months

Gold Mutual Fund Taxation

Holding Period for LTCG: 24 months

Source: Income Tax Department and Finance Act 2024

Key Tax Advantage: Gold ETFs

Gold ETFs have a significant tax advantage. You qualify for LTCG (12.5% flat tax) after just 12 months. For Gold Mutual Funds, you must hold for 24 months.

If you're in the 30% tax bracket and need to exit before 24 months, Gold ETFs save you substantial tax.

Example:

• Investment: ₹10 lakh
• Gain: ₹2 lakh after 15 months
• Gold ETF tax: ₹25,000 (12.5% LTCG)
• Gold Mutual Fund tax: ₹60,000 (30% STCG)

Savings with Gold ETF: ₹35,000

TDS for NRIs

When you redeem, the fund house deducts TDS before crediting proceeds:

• Gold ETF LTCG: 12.5% TDS
• Gold ETF STCG: 30% TDS (highest slab assumed)
• Gold Mutual Fund: Same rates

You can claim refunds when filing your ITR in India if your actual tax liability is lower.

👉 Tip: If you might need to exit within 12-24 months, Gold ETFs offer better tax treatment. Plan your holding period before investing.

Which is Easier for NRIs to Invest In?

For NRIs living abroad, convenience matters. Here's how both options compare:

Gold ETF: Requirements

1. Demat account with an NRI-friendly broker
2. Trading account linked to demat
3. NRE/NRO bank account for fund settlement
4. PAN card and completed KYC
5. Non-PIS account (PIS not required for ETFs)

The process involves more setup. You need to open a demat account, which can take 1-2 weeks for NRIs. Not all brokers offer seamless NRI onboarding.

Brokers that work well for NRIs: ICICI Direct, HDFC Securities, Kotak Securities

Gold Mutual Fund: Requirements

1. NRE/NRO bank account
2. PAN card and completed KYC
3. No demat account needed

Gold Mutual Funds are simpler. Complete your KYC once, and you can invest through any platform or AMC website. Many platforms offer video KYC for NRIs.

Platforms for NRIs: Kuvera, INDmoney, iNRI, direct AMC websites

Verdict on Convenience

If you already have a demat account from your resident days, Gold ETFs are easy to continue.

If you're starting fresh and don't want the hassle of opening demat accounts, Gold Mutual Funds are more accessible.

Read more: Best Investment Platforms for NRIs

SIP vs Lump Sum: Which Allows What?

This is a crucial difference that many NRIs overlook.

Gold ETFs: No SIP

Gold ETFs don't allow systematic investment plans. You must buy at least 1 unit (approximately ₹6,000-7,000 at current prices) each time you invest.

You can manually invest every month, but:

• You pay brokerage each time
• Minimum investment is higher
• No auto-debit convenience

Gold Mutual Funds: SIP Friendly

Gold Mutual Funds support SIPs starting at just ₹500/month.

Benefits of SIP in Gold Mutual Funds:

• Auto-debit from NRE/NRO account
• Rupee cost averaging
• Disciplined investing
• No need to time the market

For NRIs who want to systematically build gold allocation without large lump sums, Gold Mutual Funds are the clear winner.

Learn more: SIP vs Lump Sum for NRIs

👉 Tip: If you want to invest ₹5,000 monthly in gold, Gold Mutual Funds are your only practical option. Gold ETFs require manual purchases with brokerage fees each time.

Liquidity: How Quickly Can You Exit?

Gold ETF Liquidity

Gold ETFs trade on stock exchanges during market hours (9:15 AM to 3:30 PM IST). You can sell instantly at the prevailing market price.

Settlement: T+1 (funds credited next business day)

However, liquidity depends on trading volume. Less popular ETFs may have wider bid-ask spreads, meaning you might get slightly less than the NAV.

High-liquidity ETFs: Nippon India ETF Gold BeES, SBI Gold ETF, HDFC Gold ETF

Gold Mutual Fund Liquidity

Gold Mutual Funds don't trade on exchanges. You redeem through the AMC at the day's NAV.

Settlement: T+3 business days (funds credited in 3 days)

No bid-ask spread concerns, but you can't exit during market hours. If gold prices are falling, you're stuck with end-of-day NAV.

Which is More Liquid?

Gold ETFs win on liquidity. If you need to exit urgently during a price spike, ETFs let you capture that moment. Mutual funds don't.

FEMA and Repatriation Rules for NRIs

Both Gold ETFs and Gold Mutual Funds fall under FEMA (Foreign Exchange Management Act) regulations.

Account Requirements

• NRE account: Investment and returns fully repatriable
• NRO account: Repatriation limited to $1 million per financial year, requires tax clearance
• FCNR account: Cannot be used directly for gold investments

All investments must be in Indian Rupees. You cannot invest directly in foreign currency.

FATCA Implications for US/Canada NRIs

US and Canada NRIs face additional compliance under FATCA (Foreign Account Tax Compliance Act).

Gold ETFs: Generally easier. Most brokers allow US/Canada NRIs to trade ETFs with proper documentation.

Gold Mutual Funds: More restrictive. Several AMCs don't accept investments from US/Canada NRIs due to FATCA compliance burden.

AMCs that accept US/Canada NRIs for Gold Funds: UTI, Nippon India, Aditya Birla Sun Life (verify current policies before investing)

Read more: India-UAE DTAA Benefits for NRIs

👉 Tip: If you're a US NRI, Gold ETFs through a compliant broker may be simpler than navigating mutual fund FATCA restrictions.

Tracking Error: Which Follows Gold Better?

Tracking error measures how closely a fund follows its benchmark (gold prices in this case). Lower is better.

Gold ETF Tracking Error

Gold ETFs directly hold physical gold, so tracking errors are minimal.

Source: ClearTax

Gold Mutual Fund Tracking Error

Gold Mutual Funds have higher tracking errors because they invest in ETFs, not gold directly. The double-layer structure introduces lag.

Typical tracking error: 0.8% to 1.2%

Impact on Returns

A 0.5% higher tracking error means your returns deviate more from actual gold prices. Over long periods, this compounds negatively.

When Should You Choose Gold ETF?

Gold ETFs make sense if:

1. You already have a demat account and are comfortable trading
2. You're investing a lump sum of ₹50,000 or more
3. You want lower costs and don't mind managing trades yourself
4. You value real-time liquidity and want to exit quickly if needed
5. You're tax-conscious and prefer the 12-month LTCG benefit
6. You're a US/Canada NRI facing mutual fund restrictions

Ideal Profile: Experienced investor with existing trading setup, investing lump sums, planning to hold 1-3 years.

When Should You Choose Gold Mutual Fund?

Gold Mutual Funds make sense if:

1. You don't have a demat account and don't want to open one
2. You prefer SIP investing with small monthly amounts
3. You're a beginner and want a simpler process
4. You're building long-term allocation over 5+ years
5. Convenience matters more than cost to you
6. You're investing from UAE/UK/Singapore without FATCA concerns

Ideal Profile: Beginner or passive investor, starting SIPs of ₹2,000-5,000/month, planning to hold 5+ years.

Top Gold ETFs for NRIs in 2025

Based on expense ratio, tracking error, and liquidity:

Source: AMC websites and AMFI

Top Gold Mutual Funds for NRIs in 2025

Based on returns, expense ratio, and SIP convenience:

Source: AMC scheme documents

👉 Tip: Check the "Direct" plan for lower expense ratios. Regular plans include distributor commissions that eat into your returns.

How to Invest in Gold ETF as an NRI

Step 1: Open NRE/NRO Bank Account

Choose a bank with good NRI services. Popular options: HDFC, ICICI, Axis.

Step 2: Open Demat and Trading Account

Apply through NRI-friendly brokers like ICICI Direct or HDFC Securities. You'll need:

• PAN card
• Passport copy
• Visa/OCI card
• Overseas address proof
• NRE/NRO account details

Processing time: 7-15 days

Step 3: Complete KYC

Submit documents for verification. Video KYC is available with some brokers.

Step 4: Fund Your Account

Transfer money from your NRE/NRO account to the linked trading account.

Step 5: Buy Gold ETF

Log into your trading account, search for the Gold ETF (e.g., "GOLDBEES"), and place a buy order during market hours.

How to Invest in Gold Mutual Fund as an NRI

Step 1: Complete Mutual Fund KYC

Use CVL KRA (cvlkra.com) or your platform's KYC process. Documents needed:

• PAN card
• Passport with visa
• Overseas address proof
• FATCA/CRS declaration

Read our guide: Mutual Fund KYC for NRIs

Step 2: Choose Your Platform

Options include:

• Direct AMC websites (SBI MF, HDFC MF, ICICI Prudential)
• Aggregator platforms (Kuvera, INDmoney)
• Bank wealth portals

Step 3: Select Fund and Investment Mode

Choose between SIP (systematic monthly) or lump sum. For SIPs, set up bank mandate for auto-debit.

Step 4: Invest

Complete the transaction using net banking from your NRE/NRO account.

Sovereign Gold Bonds: A Third Option

Before deciding between ETF and Mutual Fund, consider Sovereign Gold Bonds (SGBs) issued by RBI.

SGBs are tax-free on maturity if held for 8 years. Plus, you earn 2.5% annual interest. For long-term NRIs, this is often the best gold investment.

Learn more: Sovereign Gold Bonds for NRIs

👉 Tip: SGBs are ideal for 8+ year horizons. For shorter periods or if you need liquidity, ETFs or Mutual Funds are better.

Our Recommendation: Which Should You Choose?

After helping hundreds of NRIs, here's our framework:

Choose Gold ETF If:

• You have a demat account or plan to invest in Indian stocks anyway
• You're investing ₹1 lakh+ as lump sum
• You might exit within 12-24 months
• You want the lowest cost and highest liquidity
• You're comfortable with stock market transactions

Choose Gold Mutual Fund If:

• You don't have a demat account and don't want one
• You prefer SIP with ₹2,000-10,000/month
• You're a long-term investor (5+ years)
• You value convenience over minor cost savings
• You're new to investing in India

Consider Both If:

• You want to invest lump sums in ETF and do SIPs in Mutual Fund
• You're building a diversified gold allocation across instruments

The GIFT City Alternative

If you're investing from the UAE and want to avoid rupee depreciation risk, consider GIFT City investments.

GIFT City offers USD-denominated gold exposure without currency conversion. For UAE NRIs with no Indian income tax, this can be more tax-efficient than domestic gold investments.

Explore: GIFT City Benefits for NRIs

Make Your Decision

Gold ETFs and Gold Mutual Funds both give you exposure to gold prices. The right choice depends on your specific situation:

• For cost and tax efficiency: Gold ETF
• For SIP convenience: Gold Mutual Fund
• For 8+ year holding: Consider SGBs

If you're still unsure, start small. Try both with ₹10,000-20,000 each. Experience the process, understand the tax implications, and then scale up.

Connect with fellow NRIs who've made this decision. Ask questions, share experiences, and learn from each other.

Join Belong WhatsApp Community

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Compare FD rates, track INR/USD, and explore GIFT City investments that offer tax-free returns for UAE NRIs.

Sources

1. SEBI - Mutual Fund Regulations: sebi.gov.in
2. Income Tax Department - Capital Gains: incometaxindia.gov.in
3. AMFI - Fund Performance Data: amfiindia.com
4. RBI - Gold Monetisation: rbi.org.in
5. World Gold Council - India Gold Demand: gold.org
6. ClearTax - Gold ETF Analysis: cleartax.in
7. Bajaj Finserv - Gold ETF vs Mutual Fund: bajajfinserv.in
8. Angel One - ETF Expense Ratios: angelone.in

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Gold investments are subject to market risks. Please consult a qualified financial advisor before making investment decisions. Past performance does not guarantee future returns.