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Gold And Silver ETF Or Mutual Funds

Posted on 12-Jul-2023

6 min read

With the world changing much after the pandemic, not just conventional business models and workflow processes are undergoing a transition but even the strategies of investors too, especially that of people investing in mutual fund schemes.

Table of Content

Gold And Silver ETF Or Mutual Funds – Which Investment Option Is More Profitable?

With the world changing much after the pandemic, not just conventional business models and workflow processes are undergoing a transition but even the strategies of investors too, especially that of people investing in mutual fund schemes. People who were once into methods like indices trading and mutual funds are now focussing on the different sub-categories available within them. One such variant amongst that investment options that has gained tremendous popularity recently is ETF. The term ETF stands for Exchange-Traded Funds. Investing in ETF is similar to the way a person invests in stocks. A person needs to first open an investment account and then can purchase ETF just the way he or she would purchase stocks of different companies. The only difference here is the fact that investing in Exchange-Traded Funds acts as a method that allows you to split your invested amount into different companies of a particular domain by purchasing one fund. Let us look at the functionality of how ETF works and what are the points to be concerned about while making a comparative analysis of ETF vs mutual fund schemes.

Functionality Of An ETF

As already explained above, an Exchange-Traded Fund prominently known as ETF is a fund that allows you to invest a particular amount of money that is in turn split across different organizations of a particular sector. To say in simple terms, an ETF can be called as a package or a bundle that takes care of your invested amount of money by splitting it across the top-rated companies in a particular sector. A famous saying that every investor would be and should be aware of is “Never put all the eggs in the same basket” and an ETF is a perfect example of it. It is actually fair to say that an Exchange-Traded Fund is the most specified version of the “eggs in the basket” reference in terms of a particular sector. An example can support a better understanding of the above-mentioned statement. If a person is investing in an ETF in the IT sector, the invested amount will be split across a particular set of top-performing information or technology-related companies. This might make you wonder if it is fair to even compare ETF vs mutual funds because the functionality of both is not too different from each other.

Benefits Of Investing In ETF

Every investment method has its own set of advantages and the Exchange-Traded Fund is no exception. The ETF investment method has gained drastic prominence in recent times amongst investors as it gives them a great hedge in securing their portfolio from hitting rock bottom during troubled times. Especially, when the market has become highly volatile as seen in the recent past, this scenario has made many investors go defensive with their investing style or methods. And choosing ETFs can do you a great deal of goodness as you prepare to save your capital or investments which eventually will protect your portfolio from suffering huge losses. The next benefit of investing in ETFs is they are as easy as purchasing stocks. As already said,an ETF can be considered as a compilation of the top-performing stocks available together as a bundle and so, investors having a valid trading account can purchase their desired ETFs of any sector normally just like buying stocks. This way, even if one or two companies don’t perform well, there are other companies that will perform better and whose results will compensate and make the ETF safe from undergoing a fall. Even this type of investing can justify the concept of not putting all your eggs in a single basket as investing in one particular company can prove to be very costly if the company’s stock value crashes.

Gold And Silver ETF

While in a generalized perspective, an ETF can be called as a bundle of good stocks belonging to a particular sector, ETF for gold and silver are quite different. They are not a package of stocks where an investment amount will be divided across companies but the amount will be purely invested in the precious metals which are gold and silver in this case. In simple terms for a better understanding, if the rates of the gold and silver metals rise up, then the stock value of these ETFs go up as well and they behave the other way when the price of these metals goes down. So technically speaking, investing in gold or silver ETFs mean a person is investing directly in the metals themselves but through an easy way as in buying stocks which once purchased will reflect in a person’s portfolio within the stipulated time limit. The good thing about investing in silver or gold ETFs is that it gives an investor’s portfolio a good hedge against the volatility of the share market because gold and silver are two commodities that have a global demand for various reasons and factors. Right from geo-political factors to being used for scientific research and let us not forget the significant usage of gold and silver in the field of medicine, they play an important role than just being the raw materials for making shiny and eye-catching jewellery. And hence, there is always a considerable amount of demand for gold and silver which is one reason why investing in gold and silver ETFs can be an attractive idea! The global demand for these precious metals as well enables them to be used as a hedging option by many investors to secure their portfolios from facing extreme losses.

How Is A Mutual Fund Different From ETF?

The overall functionality of both mutual funds and ETFs can be deemed the same from a generalized perspective but the features involved are different though. For instance, in an IT ETF, the invested money is split across different top-performing companies in the IT sector but it still covers just one sector. The disadvantage here is if the IT sector takes a plunge due to market conditions, then the risk involved is high as it will affect every company’s performance and so the returns will not be good. This is exactly why investing in a mutual fund scheme will be a game-changing investment option because a mutual fund’s portfolio is diversified across sectors and not just amongst top-performing companies within a particular sector. The next advantage is the presence of a fund manager to take care of the mutual fund scheme’s portfolio. An experienced person who performs market analysis by understanding the market trends or fluctuation can and will adjust the weightage of stocks in the portfolio which prevents the investors from facing heavy losses. A huge downfall across every sector is an improbable scenario unless it is an economic breakdown such as a recession or a pandemic, which is why investing in a mutual fund is technically a wise move. This is because even if stocks of one sector or two lose their market value, there are still other sectors to compensate for and keep the portfolio risk-free with their performances.

So, what is the final verdict? Which is the more profitable option – Gold and Silver ETFs or Mutual Fund Schemes? Well, to declare with all honesty, both can be equally good depending on the investor’s strategy but to answer from a generalized perspective, investing in mutual funds can be more profitable while the Gold and Silver ETF option can be a great one to choose in order to hedge a person’s portfolio. The reason behind this is the fact that a mutual fund scheme leverages the revenue performances of many sectors together and though there is a considerable level of risk involved, chances are high for a great percentage of profit to be reaped as well. So, rather than going into a debate of ETF vs mutual fund plans, the better option will be to know in depth about both these investment options to attain high profits which will eventually make a person achieve his or her desired lifestyle in time. Investing in mutual fund schemes can be a person’s main strategy while investing in Exchange-Traded Funds of gold and silver metals can be a good backup plan that can safely hedge the portfolio from facing heavy losses due to market trends and fluctuations!

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