Gold Funds vs Sovereign Gold Bonds

Basis	Gold Fund	Sovereign Gold Bonds
What	The gold mutual fund invests in physical gold or gold-related securities, such as gold ETFs. These funds are actively managed to follow gold price changes. Some of these schemes buy physical gold and keep it in the vaults.	SGBs are debt securities issued by the RBI on behalf of the Indian government. They are directly tied to gold prices, providing a fixed 2.5% interest rate. However, SGB does not buy physical gold. The price is only pegged to gold.
Time Horizons	They provide flexible time horizons. Investors can even exit the very next day paying some nominal exit load.	SGBs have an 8-year term, but allowing early redemption after 5 years or exiting through the secondary market is another option.
Risk	They are low-risk instruments, less volatile than equity schemes. Offer consistent long-term returns.	SGBs are backed by the government, making them minimal-risk instruments. Only Price pegged to gold.
Returns	Gold price movements influence returns.	SGBs offer a fixed rate along with potential capital appreciation (appreciation in the gold price is the capital appreciation)
Taxation	Taxable based on the investor’s tax slab	SGBs are tax-exempt if held until maturity

Gold Funds Returns

Gold Funds	Returns (P.A) (as of 9 Feb 2024) (last 5yrs)
Invesco India Gold ETF FoF	10.65%
Axis Gold Fund	10.58%
SBI Gold Fund	10.54%
ICICI Prudential Regular Gold Savings Fund (FOF)	10.46%
HDFC Gold Fund	10.41%