Gold funds, ETFs and sovereign gold bonds

Most people who want gold in a portfolio do not want a locker full of coins. Paper gold lets you hold the gold price without storing metal, and there are three routes to it. They track the same thing but differ in how they are bought, what they cost, and what you legally hold — and one of them is not a mutual fund at all.

Three ways to hold gold on paper

Route	What it is	How you buy it
Gold ETF	An exchange-traded fund that holds physical gold; its value tracks the gold price.	On the stock exchange, through a demat account.
Gold fund	A mutual fund that invests in a gold ETF — a fund of funds.	Like any mutual fund; no demat account, and a SIP is possible.
Sovereign gold bond	A government security denominated in grams of gold. Not a mutual fund.	No new issues since February 2024; existing bonds trade on the stock exchange.

Gold ETFs and gold funds

A gold ETF is a fund that holds physical gold and trades on the stock exchange, so buying one needs a demat account and its price follows the gold price through the day. A gold fund is a mutual fund that simply invests in a gold ETF, so you buy it like any other mutual fund, without a demat account, and can run a SIP into it. The fund route adds a small extra layer of cost for that convenience.

Neither one makes gold behave differently. Both give you the gold price, minus costs. The choice between them is about how you prefer to buy and hold, not about the exposure you end up with.

Sovereign gold bonds are a different animal

A sovereign gold bond is issued by the Reserve Bank on behalf of the government and is a security, not a fund. Its value tracks the price of gold, and on top of that it pays a fixed rate of interest, set when the bond is issued, on the amount you first invested — something the ETF and fund routes do not do. It runs to a set maturity, with defined windows to exit earlier.

Two things to know. No new sovereign gold bonds have been issued since the February 2024 tranche, and none has been announced since. Existing bonds continue to pay interest and can be held to maturity, redeemed early on the dates the Reserve Bank notifies, or traded on the stock exchange. And because it is a government security rather than a pooled fund, it sits outside the mutual fund framework the rest of this site describes — useful context, not a scheme a distributor transacts for you the same way.

Silver and other commodities

Silver has the same paper routes as gold — a silver ETF, and a silver fund that invests in one. But silver is not gold, and other commodities differ again, so they are a subject of their own: silver and commodity ETFs.

The risk the shine hides

Gold is often talked about as a store of value, which leads people to treat it as a low-risk hold. It is not that. The price of gold moves, can fall, and has gone nowhere for years at a stretch, so paper gold is not a fixed or protected return — its value is not assured.

The deeper point is where the return comes from. A share earns you a slice of a company’s profits; a bond pays contracted interest. Gold does neither — with an ETF or fund, your return is only the change in its price (a sovereign gold bond adds its fixed interest). That is why gold is usually discussed as a diversifier inside a multi-asset mix rather than as an engine of growth on its own.

Tax differs by route

How paper gold is taxed depends on which route you take — an ETF or fund is taxed differently from a sovereign gold bond — and the rules here have changed more than once. Because the treatment turns on the wrapper and on rules that move, confirm your own position with a qualified tax adviser rather than assuming it from another year or another product.