Investing in gold has been one of the most traditional ways of investment in India. There is a high chance that you have gold in some form in your house, be it gold jewellery or gold coins. Gold’s prices have historically increased consistently, and though it has often been considered the most expensive commodity, it also makes for a good investment. The buyer ends up paying a hefty amount for gold jewellery due to the other expenses attached to it, like making charges and GST. But did you know that if you want to invest in gold and make profits with the increase in gold rates, you don’t necessarily have to invest in gold jewellery? You can do so by investing in gold mutual funds.
Gold prices can change every day. Being a commodity, gold prices are typically decided by the demand and supply, which are impacted by inflation and interest rates offered by the banks. The lower the interest rate offered by the bank, the higher the chances are for gold prices to increase as it will be looked at as a better investment option. You can track the latest prices of gold online and set alarms for price movements.
Investments in gold can happen without physically owning it. Gold is a lucrative investment because it is a hedge against inflation and an unstable stock market. Since gold is not linked to the stock market in any way, when the stock market falls, investors switch their investments to gold since it is a more stable option at that time. As a commodity, its scarcity drives its value, which is why inflation traditionally raises gold prices. Investments that are liquid tend to be more popular since they can be easily bought and sold. This is precisely why gold funds are considered better investments than physical gold.
Gold funds are similar to mutual funds, where the pooled resources are invested in assets related to gold. These assets are typically a strategic mix of gold bullion, gold futures contracts and stocks of gold mining companies. Instead of separately investing in each of these assets and keeping track of the individual returns, gold mutual funds help seamlessly receive averaged-out returns by investing in a single instrument. The most critical element of this instrument is that gold funds offer direct exposure to gold.
A gold fund manager gathers the money from all its investors and invests it in Gold related instruments like gold ETFs, gold bonds, commodities exchanges and so on. Returns of the Gold mutual fund are correlated to the returns of the gold ETF. The Net Asset Value (NAV) of the fund is the same as the actual price of the gold if purchased physically, except for the overhead charges. Many investors are inclined to invest in gold bonds to generate passive income and safeguard their portfolios from market instability.
Let us compare gold funds to gold ETFs to understand better how gold funds work.
| Points of Differences | Gold Funds | Gold ETF | |
| 1 | Mode of Investment | It can be purchased through a broker or directly through SIPs. | It can be purchased only through the stock exchange using a Demat account. |
| 2 | Pricing | It can be viewed by way of NAV and is disclosed only at the end of the trading hour. | They are listed on a stock exchange. The real-time value can be viewed just like any other stock. |
| 3 | Minimum Investment Required | A lump sum payment of Rs 5,000 and a SIP of Rs 1,000 can be started. | ETFs are traded like stocks, so you can buy units of gold. This would depend on the gold price on the day of investment. |
Investing in gold mutual funds could transform a portfolio and bring with it many benefits. Here’s how investing in gold funds could impact a portfolio.
In gold mutual funds, investment in gold is made without physically purchasing gold. There is no need to open a Demat account. You can simply invest directly or through a SIP (Systematic Investment Plan).
The gold fund units can be sold at the applicable NAV any time during market hours on business days. If you have an urgent financial requirement, the gold mutual funds can be redeemed without hassle.
Gold funds are an effective hedge against unstable stock markets, so investing in gold mutual funds can help you create a diversified portfolio.
Since money invested in SIP is contributed every month, it develops a habit of saving in the investor. This, in turn, would help you manage funds properly and help in the accumulation of money for future needs.
Gold mutual funds give good returns if the investment duration is 8 years or more, which is considered a long-term investment. As a commodity, gold prices generally rise over a period of time. With this rise, you can earn capital gains.
Though the risk involved in investing in gold mutual funds is low, especially when compared to investing in equities, there are certain points that an investor needs to keep in mind before investing in gold funds.
People tend to invest in gold funds mostly when markets are volatile or when markets crash and don’t show signs of recovery. Although investing in gold mutual funds is considered safe, the returns are low. Gold funds are better suited for large-size portfolios.
If the gold funds are redeemed in 3 years, the returns will be short-term capital gains. This will be added to gross income and taxed accordingly. However, if gold bonds are held for more than 3 years, the returns will be long-term capital gains. It will fetch a tax of 20% with the benefits of indexation.
You can now easily choose from a wide range of curated mutual funds on Jupiter Money to invest directly in gold funds. You can make the most of your direct mutual fund investments with zero charges and zero commission. Investments can be tracked in real-time using the user-friendly mobile application of Jupiter Money, making smart investments as simple as a single click.
Investing in Gold Funds is a good way for your portfolio to gain exposure to Gold as an asset. When you purchase Gold Mutual Funds, their value is the same as the value of gold. It is like owning gold without physically seeing it. However, you should be cautious while investing in Gold Funds as there are no guaranteed investment returns.Investors invest in mutual funds to get high returns. It is always recommended that all investments are not be made in equities. To lessen the investment portfolio’s risk, you could consider Gold Funds. Professionals believe that 20% of an investor’s portfolio should be invested in Gold Mutual Funds. They are very helpful during financial and economic crises. Gold Fund investments also protect against geopolitical insecurity. It is better to stay up to date with the latest market trends and invest when equity markets are not doing well. The most important thing to keep in mind before investing in Gold Mutual Funds is to be convinced about the potential growth and be mindful of the risks involved.
Investing in Gold Mutual Funds is usually considered a safe investment as gold prices do not fluctuate much. It is very important for an investor to diversify their portfolio, and Gold Funds can protect against inflation and economic instability.
NAV of the Gold Mutual Funds depends on the actual gold price. If the price of gold rises, then the NAV of gold funds also increases.
Gold Funds ideally rise when markets fall, thus exhibiting seasonal behaviour. It typically shows positive returns if held for the long term. If markets rise, then they usually show negative returns in the short term. A smart investor could invest in Gold Mutual Funds to make a good profit when markets show instability.
If an investment is for a long duration, like 8 to 10 months, then Gold Bond is considered to be better. If you want faster returns and liquidity, investing in Gold Mutual Fund is better than physical gold.
Yes, it can be redeemed on any business day, online or offline. Gold Funds are open-ended mutual fund schemes. Returns will be according to the NAV of the funds on the day it is sold.
When selecting a Gold Mutual Fund, the investor must analyse quantitative and qualitative parameters. You should have clarity about your financial goals, the volume of funds available for investment, tenure and risk appetite.
