Gold mutual funds: Types and benefits
Gold has always been one of the preferred investment options of investors, particularly in India as it holds great value in terms of monetary and culture. It is a symbol of status in Indian society. Investment in gold can be done in many ways. For example, traditionally it was purchased in form of jewelry or gold bars. But as the world is changing, so does the investment avenues. There are many new options that have emerged like gold ETF, gold funds, sovereign gold bond scheme, etc. in which investors like to invest.
In this article, we are going to talk about gold funds or gold mutual funds, its types and benefits, etc.
So let’s start with the meaning of gold mutual fund
What do you mean by gold Mutual fund?
A gold mutual fund is a type of mutual fund that demands investment in various forms of gold, as the name suggests. The investment in these funds generally made on physical gold and on stocks of mining companies and stocks of gold producing and distributing syndicates providing an alternative of physical gold investment to investors. The main objective of these types of funds is to provide a cushion against market collapses.
Types of Gold Mutual Funds:
There are three types of gold funds:
Gold mining funds: gold mining funds are the types of gold funds that invest in gold mining companies. The return of these funds is dependent on the performance of the mining companies.
Gold ETF: Gold ETF or Gold Exchange Trade Funds are those funds that have gold as their underlying asset. They closely track the performance of domestic prices of gold.
Gold fund of funds: Gold FoF or gold Fund of Fund are those funds that invest in units of gold ETF.
Advantages of investing in Gold Mutual funds
There are many advantages of investing in gold mutual funds that you get when you invest in gold mutual funds.
Some of the major advantages are discussed below:
- The first and foremost advantage of gold fund investment is that there is no issue of storage that always happens when you purchase physical gold. The investments are in electronic form so there is no concern about the storage of the gold. This makes it one of the safest alternatives to physical gold.
- Second, investing in gold mutual funds make your portfolio more diversified and reduce your risk. That makes it a good option for investors looking for low-risk investments.
- Third, there is no need for you to have a Demat account to invest in gold mutual funds. So you can make an investment through a mutual fund advisor with a nominal account.
- Fourth, there is a great advantage of liquidity that you can avail when you invest in gold mutual funds rather than physical gold. You can sell or redeem your funds easily.
- Fifth, investment in gold mutual funds are cost-effective in comparison to physical gold. Gold mutual funds provide great flexibility to their investors. The investors can also invest in gold mutual funds with SIP (systematic Investment Plan). Thus providing small investors the advantage to invest in gold mutual funds and avail the benefits of diversification and reduce their risk.
- Last but not the least, this advantage is important which gets ignored sometimes by the investors that investment in gold mutual funds provides protection during the period of inflation.
Risk on investing in Gold Mutual Funds
Since you are now aware of the advantages of Gold Mutual funds now it’s time to see what are the risks involved in it. Because before making any investment you should consider the risk associated with it and compare it with your risk-taking capacity. So let’s start-
Fluctuation in value of the gold:
One thing that you need to consider that the value of the gold may change. The value of gold is affected by demand and supply, which leads to rising or fall in the value of the gold. The prices are very seasonal in nature. Thus gold involves high volatility. That’s why it is advised by many investment experts to not view gold as an investment option but as a hedge.
No Guarantee of Exceptional return
It is pretty clear from the point that gold should not be considered as a long-term option for wealth creation. The return from gold mutual funds may not be higher like equities. The performance of the gold is well during the market crisis. Thus providing an alternative option in time of market turmoil.
Things you need to consider while investing in Gold Mutual Funds:
- The returns from Gold Mutual Funds may not provide good returns like equities.
- Investment in gold shows seasonal trends. Investment in gold shows good returns during market crises.
- Before investing you need to check or track the trend that is prevailing. That can help you get the idea of the performance of the asset class.
- Investment in Gold mutual funds matches your financial goal and risk appetite.
Happy investing!
Disclaimer: Take advice from your financial advisor before investing.
FAQs
No storage hassles: With physical gold, safe storage can be a concern. Gold Mutual Funds eliminate this issue as they are held electronically. Rupee cost averaging: Investors can benefit from rupee cost averaging by investing a fixed amount at regular intervals, which reduces the impact of market volatility.
What are the disadvantages of gold mutual funds? ›
Disadvantages
- Higher Costs: Expense ratios are typically higher compared to Gold ETFs, potentially impacting your long-term returns.
- Lower Transparency: The underlying holdings and investment strategy may be less transparent than with Gold ETFs, which track the gold price directly.
Cons of Investing in Gold
There is no stream of income associated with the investment. Other investments provide income in addition to gains from price appreciation. For example, stocks can earn dividends, bonds can earn interest and investment real estate can earn rent. Extra costs.
Which is better, gold ETF or gold mutual fund? ›
Comparatively, gold ETFs are cheaper as there are no exit loads to be paid. Redeeming gold ETFs is easy than that in gold mutual funds. Since gold ETFs are traded on stock exchanges, you can buy or sell units at any time of the day during trading hours.
What is the best fund to buy gold? ›
Best-performing gold ETFs
| Ticker | Company | Performance (Year) |
|---|
| GLDM | SPDR Gold MiniShares Trust | 25.45% |
| IAUM | iShares Gold Trust Micro | 25.44% |
| FGDL | Franklin Responsibly Sourced Gold ETF | 25.42% |
| AAAU | Goldman Sachs Physical Gold ETF | 25.40% |
1 more row4 days ago
Lock-in period: Gold mutual funds typically do not have a lock-in period, allowing investors to redeem their units at any time. However, early redemptions may attract exit charges.
Which gold investment is best? ›
Solid Gold (Biscuits/Bars/Coins)
Individuals can also invest in solid gold by purchasing biscuits, bars, or coins. The making charges here are very low, and you get good returns while selling. However, one common risk factor in the possession of physical gold is storage and theft.
Why is gold not the best investment? ›
Price volatility: The price of gold can be volatile, and it may fluctuate significantly over short periods. This can make it difficult to predict its value and can make it a risky investment.
What is the weakness of gold investment? ›
Not Regular Income
Gold may not be ideal for investors seeking fast returns or regular income. Your gold investment solely depends on the appreciation of gold prices. Gold investments do not provide a steady cash flow, unlike other asset classes, such as stocks and real estate, which offer regular returns.
Is it better to keep gold or cash? ›
Gold offers a hedge against inflation
Gold is a unique safe haven asset because it acts as an inflation hedge. This is due to gold's historical tendency to climb in value when the dollar falls. So, the precious metal may help you maintain the value in your portfolio during periods of high inflation.
But exactly how much should you put into it? Experts typically recommend devoting between 5% to 10% of your portfolio to it. "This amount aims to balance the benefits of diversification with the unique risks and fluctuations of the gold market," says Nicholas Ganesh, manager at Endeavor Metals Group.
Is 1 oz of gold a good investment? ›
Investing in 1-ounce gold bars can be a prudent move for those who are looking to diversify their portfolios and safeguard against economic uncertainties. However, it's crucial to approach this investment with a clear understanding of the market, associated costs and the long-term commitment required.
How do I choose a gold mutual fund? ›
Factors to consider before investing in Gold Mutual Funds
- Fluctuations in Gold Prices: Gold prices are subject to fluctuations influenced by global demand and supply. ...
- No Physical Gold Ownership: Gold funds offer a way to remain invested in gold without owning physical gold. ...
- Taxation on Gold ETFs: ...
- Taxation on Gold FoF:
Stocks have generally performed better than gold over the years, but there can be exceptions.
What is the number one gold ETF? ›
GLD is considered by many to be the premier gold ETF on the market. That's because this $62 billion gold fund is one of the most convenient, low-cost, highly liquid ways any investor – large or small – can participate in the gold market and benefit from the inflation protection that owning gold offers.
What does a gold fund do? ›
A gold fund is a type of investment fund that holds assets related to gold. The two most common types of gold funds are those holding physical gold bullion, gold futures contracts, or gold mining companies. Gold funds are popular investment vehicles among investors who wish to hedge against perceived inflation risks.
Which is better gold bond or mutual funds? ›
Sovereign Gold Bonds offer low risk with government backing and fixed interest, while Mutual Funds vary in risk, potentially providing higher returns but with increased market-driven risk. Sovereign Gold Bonds have lower expenses, being government-issued.
Is gold a good investment plan? ›
Gold is a preferred investment option in India due to its high liquidity and ability to beat inflation over the long term. Traditionally, people have invested in physical gold jewellery. Today, options include digital gold, gold ETFs, gold mutual funds, and RBI's sovereign gold bond scheme.
What is the benefit of gold saving? ›
It can Protect Against Inflation Risks
You can instead try to invest in gold or other safe assets that will protect you from the risks of inflation. It has been noticed that gold has outperformed the inflation rate over the years and you will be able to reduce your risk by a huge margin by having some savings in gold.
