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Gold Funds – Basics & Purpose of Gold Mutual Funds

Gold Funds - Basics & Purpose of Gold Mutual Funds
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Gold has always been a symbol of wealth and security, but today, investing in gold means something other than stashing away heavy jewelry, bars, and coins. Enter gold funds—an innovative and hassle-free way to add the shine of gold to your investment kitty. 

Gold has always been a symbol of wealth and security, but today, investing in gold means something other than stashing away heavy jewelry, bars, and coins. Enter gold funds—an innovative and hassle-free way to add the shine of gold to your investment kitty. 

Are you curious about Gold funds and why you should consider them? This article shall answer your queries and give you more details on the basics and purpose of Gold Funds in India.

What are Gold Funds?

A type of mutual fund, gold funds directly or indirectly invest in gold savings. Generally, investments are made in gold-related stocks, such as companies that produce and distribute gold, physical gold, and mining companies’ stocks.

Gold funds are a convenient way to invest in an asset without purchasing the commodity in its physical form. These are open-ended investments connected to gold Exchange Traded Fund (ETF) units. Gold is a fundamental asset; thus, its value depends directly on its price.

Gold funds are a convenient way to invest in an asset without purchasing the commodity in its physical form. These are open-ended investments connected to gold Exchange Traded Fund (ETF) units. Gold is a fundamental asset; thus, its value depends directly on its price.

What are the Benefits of Investing in Gold Funds in India?

There are several advantages to investing in gold funds. Let us find out as mentioned below:

Protection from Inflation: One significant advantage is that you can grow your investment while protecting your money from inflation with gold sector funds.  And this is an intelligent way to invest in long-term goals. Since gold has a limited supply, its prices have steadily risen, making it a solid option for long-term investing.

Flexibility of Investments: Investors enjoy the flexibility to inclusively monitor their mutual fund investments with their gold funds. There are alert services by SMS messages, a 24/7 phone support system, and modern modes of communication like websites, chat, and email.

Easy to Track: To track their portfolio values whenever needed, investors can check the current fund value online or call the toll-free number of the fund house. This tracking strategy gives investors a better idea of transacting their gold funds.

● Liquidity: Investors are attracted by the ability to redeem mutual fund units at par value at any time. For instance, if someone invests Rs. 50,000 and decides to stop in the future, they can withdraw the total amount. This easy and convenient reclamation feature makes gold funds accessible to all types of investors.

Safer Investment: Gold has always symbolized a secure and traditional investment choice for investors. Gold funds have the benefits of accessibility, liquidity options, and low cost; hence, they have been a popular choice with investors.

What is the Purpose of Gold Funds?

The return of the best gold funds can even outgrow the actual price of the precious metal itself, creating a lucrative opportunity for investors.

The key purpose of gold sector funds is to create wealth during the investment period and provide a safety buffer against market collapse. Gold’s varying prices significantly affect stock performance. For instance, even with the slightest change in gold’s global market price, the stock return substantially changes. 

Investors sometimes use a share market advisory to get help to mitigate potential stock market losses. Various factors influence the gold fund’s performance, including the market demand for gold and broader economic conditions.

For a long-term gold mutual fund (8 years or longer), an investor can receive a return calculated based on the current market’s gold prices. If the price of gold increases at the time of redemption, the return would be significant for the investor.

Who should invest in Gold Funds?

Gold funds allow you to invest in gold without physically owning the metal. Here’s a look at who might consider investing in them:

  • Diversifiers: Gold plays a crucial role as a safe-haven asset, offering stability in market uncertainty. It helps diversify portfolios by balancing risk, making it particularly valuable when market volatility increases. In equity asset management, gold effectively counterbalances to equities, which are often more volatile. Portfolio managers can reduce overall risk by including gold with traditional equity investments while seeking long-term growth. 
  • Long-term Investors: Gold has a proven track record of maintaining its value over time, making it an appealing option for investors with a long-term perspective. For those looking to diversify their portfolios, investing in top gold stocks can provide exposure to the gold market. These stocks represent gold mining and production companies, often benefiting from rising gold prices. 
  • Risk-Averse Investors: Gold appeals to more conservative investors when seen as less risky than stocks and bonds.
  • Inflation Hedgers: Gold is a hedge against inflation, with its value typically increasing as prices rise.
  • Currency Hedgers: It protects against currency risks, especially during economic uncertainty.
  • Investors Seeking Gold Exposure: Gold funds provide a convenient way to invest in gold without the challenges of physical storage.

Investing in Gold vs Stock

The table below categorizes the investing in gold vs stock benefits.

AspectGold FundsStocks
Diversification and RiskOffers stability and reduces risk, especially during downturns.Higher return potential but with greater risk and volatility.
Regulation and TransparencyRegulated by SEBI, ensuring clarity and protection.Market authorities regulate it with varying risks.
Investment CharacteristicsInvests in physical gold, providing stability and inflation hedge.Involves shares in various sectors, including top gold stocks, with potential high returns but increased risk.
Tax EfficiencyNo TDS; taxes are based on buying and selling gold jewelry.Subject to capital gains tax and standard equity tax regulations.
Growth Potential vs. StabilityIt provides stability and acts as a haven.Offers growth opportunities but with high volatility and risk

Conclusion

Gold sector funds offer a unique advantage by hedging against market uncertainties. Conservative investors prefer gold funds in India as they help safeguard against economic downturns and inflation. Investors can add a layer of protection and stability by including gold sector funds in a balanced investment.

FAQs

  1. What are gold funds?

    Gold funds are typical investment funds that hold 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.

  2. Are gold funds a good investment?

    Gold funds are one of the safest investment options, as these mutual funds are regulated by the Securities and Exchange Board of India (SEBI). SEBI sporadically monitors and reports on the condition of these funds, which can help investors measure and predict their returns.

  3. Which is better, SIP or gold?

    Gold and SIPs offer different advantages and contemplations for investors, depending on their financial goals, risk tolerance, and investment prospects. While gold provides stability and diversification, SIPs offer the potential for long-term wealth creation through disciplined investing.

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

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