ETFs vs Fund of Funds: The new bullion battle as investors chase paper gold, silver

As gold and silver prices surge to record highs this festive season, investors are swapping jewellery boxes for digital dashboards. Retail investors have invested almost Rs 8500 crore in the gold ETFs this month, which is over 10% of the overall AUM. This is exactly in parallel with gold having delivered more than 10% returns in a single month and nearly 60% for the year. 

Apart from gold, silver ETFs, too, attracted significant attention from investors, garnering record ₹5342 crore inflows, highlighting a diversification shift towards metals. This momentum was mirrored in multi-asset allocation funds, which saw nearly Rs 5,000 crore inflows, largely driven by gold and silver allocations.

The bullion rush has sparked a new face-off in the investment world — ETFs vs Fund of Funds (FoFs) — two ways to own precious metals without holding them physically. Both glitter, but the difference lies in how they move, cost, and ultimately, reward investors.

Round 1: Access game

If you’re market-savvy and like to keep your trading app close, ETFs are your playground. Listed on stock exchanges, they trade just like shares, offering real-time pricing and instant liquidity. You can buy or sell them any time during market hours — no waiting, no paperwork.

FoFs, in contrast, are the more laid-back cousin. They invest in ETFs but are available directly through mutual fund platforms. You don’t need a demat account; transactions happen at the end-of-day net asset value (NAV). That makes them a go-to for traditional or first-time investors who prefer simplicity over speed.

Round 2: Cost and tax

When it comes to costs, ETFs punch lighter. Their expense ratios hover between 0.25% and 0.5%, while FoFs can cost nearly double — around 0.6% to 1%. The reason? FoFs add another layer of management fees since they invest in ETFs themselves.

Taxation draws an equally sharp line. ETFs turn long-term after 12 months, with gains taxed at 12.5%, while FoFs require a 24-month holding period to qualify for the same rate. Anything sold earlier attracts tax as per your income slab.

In short — ETFs are more efficient for active, short-term traders; FoFs suit those who think in years, not months.

Round 3: Performance and Tracking

While both track the same underlying metal, ETFs mirror the market almost tick-for-tick, whereas FoFs trail slightly due to cash drag and layered costs, typically by 0.3–0.7% annually.

However, ETFs come with their own quirks. During volatile periods or festival rushes, they can trade at premiums or discounts to the actual metal price. In past spikes, silver ETFs even traded 10–12% above spot prices, while FoFs reflected the move only later through their daily NAV.

The final round

The answer depends on your investment personality.

ETFs: Perfect for hands-on investors who want real-time control, quick liquidity, and low costs.

FoFs: Better for those who prefer a no-fuss, SIP-style route with the comfort of mutual fund investing.

Both offer a digital doorway into India’s bullion boom — the only question is whether you want to trade your gold like a pro or own it like a planner.

Silver ETF vs Gold ETF vs FoFs

On the NSE, top-performing ETFs such as SBI Silver, HDFC Silver, and Axis Silver have surged between 9–13% as of October 9, trading noticeably above their net asset values. Interestingly, while ETF prices continue to climb, MCX Silver December futures dipped 0.6%, suggesting that the rally is being powered more by retail-driven sentiment than by underlying market fundamentals.

Period        | Best Fund                                 | Return (%)
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1 Week        | Groww Silver ETF FoF - Direct Plan         | 12.94
3 Months      | Tata Silver ETF FoF - Direct Plan          | 51.28
6 Months      | Tata Silver ETF FoF - Direct Plan          | 77.69
1 Year        | Tata Silver ETF FoF - Direct Plan          | 81.64
3 Years       | ICICI Prudential Silver ETF                | 38.87

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Gold ETF

The Aditya Birla Sun Life Gold ETF and LIC MF Gold ETF have emerged as the top performers across timeframes. Aditya Birla leads the pack with 3.7% in one week, 34.5% in six months, and an impressive 60.2% over one year, reflecting its strong tracking efficiency and exposure to global bullion momentum. Meanwhile, LIC MF Gold ETF outperformed in the three-month (25%) and three-year (32.4%) categories, showcasing stability over longer horizons.

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Period        | Best Fund                         | Return (%)
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1 Week        | Aditya Birla Sun Life Gold ETF     | 3.74
3 Months      | LIC MF Gold ETF                    | 25.02
6 Months      | Aditya Birla Sun Life Gold ETF     | 34.45
1 Year        | Aditya Birla Sun Life Gold ETF     | 60.17
3 Years       | LIC MF Gold ETF                    | 32.39
5 Years       | Data not available

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Gold-Silver Fofs

The Edelweiss Gold and Silver ETF Fund of Fund (FoF) has emerged as the standout performer across all tracked timeframes. It delivered 7.9% in one week, 36.8% over three months, and an impressive 54.2% in six months, driven by the surge in bullion prices. Over the past year, returns reached 70.2%, while the three-year CAGR stands at 35.3%, underscoring consistent long-term strength. The fund’s blended exposure to gold and silver helped it capture gains from both metals during the recent rally. Its performance demonstrates how hybrid precious metal FoFs can outperform single-asset gold ETFs in volatile market phases.

Period    Best Fund    Return (%)
1 Week    Edelweiss Gold and Silver ETF FoF – Direct Plan    7.88%
3 Months    Edelweiss Gold and Silver ETF FoF – Direct Plan    36.77%
6 Months    Edelweiss Gold and Silver ETF FoF – Direct Plan    54.16%
1 Year    Edelweiss Gold and Silver ETF FoF – Direct Plan    70.17%
3 Years    Edelweiss Gold and Silver ETF FoF – Direct Plan    35.28%