Gold Savings vs. Gold Mutual Funds: Which is Ideal for Long-Term Wealth Creation?

Gold has long been a popular safe-haven asset for Thais. However, in this era, we have more options, including traditional gold savings by purchasing gold bars or jewelry, and investing in gold mutual funds, which are convenient and modern. The key question is which method will better serve long-term wealth creation. This article will provide a comprehensive analysis to help you find the answer that suits you.

Understanding Traditional Gold Savings

Traditional gold savings refer to purchasing and holding gold bars, gold ornaments, or gold jewelry. This method has been popular for a long time because gold is a tangible asset, possesses intrinsic value, and is universally accepted.

Most Thais are familiar with buying gold from gold shops in various districts, especially Yaowarat, where trading is bustling daily. Gold prices in Thailand are pegged to global gold prices but are quoted in Baht gold units, where one Baht gold equals 15.244 grams. Buying and selling prices fluctuate according to global market prices and exchange rates.

The advantage of this type of gold saving is that you genuinely own the gold, which can be used in various ways, such as wearing it as jewelry, pawning it for quick cash, or selling it back when the price rises. Furthermore, gold does not expire; it retains its value no matter how long it is kept.

Gold Mutual Funds: A Modern Alternative

Gold mutual funds are a way to invest in gold through a fund without physically holding the gold. The fund invests in gold bars or instruments linked to gold prices, such as Gold ETFs abroad. Investors receive fund units instead of actual gold.

In Thailand, there are several gold mutual funds to choose from, including those that invest directly in gold bars and those that invest through foreign Gold ETFs. Trading is easy through banks or asset management companies. Investments can start from a few thousand Baht and can be made regularly through Dollar Cost Averaging.

The advantages of gold mutual funds include convenience in trading, no worries about storage, no risk of theft, and the ability to redeem units on any business day at a fair price based on net asset value.

Comparing Returns and Risks

In terms of returns, both traditional gold savings and gold mutual funds primarily track global gold prices, but other factors can lead to differences in returns.

Traditional gold savings yield returns from the appreciation of gold prices, but one must consider the spread between buying and selling prices, which is typically around 200-500 Baht per Baht of gold, depending on the shop and type of gold. Gold ornaments also incur a craftsmanship fee, meaning prices must rise considerably before a profit can be made.

Gold mutual funds have an annual management fee of approximately 0.5-1.5% of the investment value and trading fees of about 0.25-1%. However, the bid-ask spread is much narrower than for physical gold bars. Some funds also benefit from exchange rate fluctuations if they invest in foreign gold without hedging currency risks.

In terms of risk, both methods share the risk of gold price volatility. However, traditional gold savings carry additional risks related to storage, theft, or counterfeiting, whereas gold mutual funds have risks associated with fund management and the financial stability of the institution.

Taxes and Expenses to Consider

Tax implications are an important aspect often overlooked. For traditional gold savings, buying and selling gold bars are exempt from Value Added Tax (VAT), but gold ornaments are subject to 7% VAT. As for profits from selling gold, if it's not a professional trade, it is exempt from income tax.

Gold mutual funds registered in Thailand, if held for more than 5 calendar years, are exempt from capital gains tax. However, if sold before 5 years, a 15% tax on profits applies. Additionally, there are LTF/RMF funds that invest in gold, which can be used for tax deductions, but they come with specific holding conditions as stipulated by law.

Other expenses to consider for traditional gold savings include safe deposit box fees or storage costs, insurance, and purity verification fees if unsure. Gold mutual funds, on the other hand, have clear management fees and brokerage fees, calculated as a percentage of the investment.

Liquidity and Investment Flexibility

Traditional gold savings offer good liquidity in major cities with many gold shops, allowing immediate sales during business hours. However, in rural areas, there might be limitations, and prices obtained could vary between shops. Gold ornaments might also sell for a lower price than gold bars.

Gold mutual funds offer high liquidity, allowing trading on any business day through online channels, regardless of location. Buying and selling prices are standardized across all channels, and funds are credited to the account within 2-3 business days.

In terms of flexibility, gold mutual funds are suitable for gradual investments, allowing small, regular contributions. Some funds start with as little as 1,000 Baht, whereas traditional gold savings require a substantial lump sum to purchase even 1 Salueng (a quarter Baht) or half a Baht of gold.

Which Option is Right for You?

Choosing between traditional gold savings and gold mutual funds depends on individual goals, lifestyle, and readiness.

Traditional gold savings are suitable for those who prefer tangible assets, desire a physical asset they can hold, have a secure place for storage, or wish to utilize gold in other ways, such as wearing it or pawning it. It's ideal for individuals with a lump sum of money who don't want the hassle of opening an investment account.

Gold mutual funds are suitable for modern investors who seek convenience, prefer not to store valuables themselves, enjoy regular, gradual investments, and wish to benefit from tax advantages. It's ideal for those with limited investment capital who want to start accumulating gold.

For long-term wealth creation, many choose to combine both methods, holding gold bars as a primary asset for emergencies and using gold mutual funds for gradual investments to average costs. This approach helps diversify risk and leverage the advantages of both options.

Conclusion

Both traditional gold savings and gold mutual funds have their strengths and weaknesses. There is no definitive answer as to which is better; it depends on individual suitability. The key is to understand the characteristics of each investment type, plan according to financial goals, and diversify investments appropriately.

Overall, gold mutual funds might be more suitable for those seeking convenience and with limited investment capital, while traditional gold savings are better for individuals with a lump sum and a desire for tangible assets. However, the best approach is to combine both methods in appropriate proportions to build a strong and sustainable long-term investment portfolio.

Source 
https://www.huasengheng.com/news/gold-saving-vs-gold-fund/
https://www.kasikornbank.com/th/kwealth/Pages/a234-gold-invest-return.aspx