Historically, investing in gold has been the go-to option for Indian investors. But, if you want to invest in the asset class without buying and storing the commodity in its physical form, the market offers just the product for it.
Gold funds, a type of mutual fund (MFs), let you gain exposure to gold while serving as a hedge against economic shocks. Before diving into the benefits of gold funds, let us look at how these funds work.
The What and How of Gold Funds
Gold funds are open-ended MFs investing in gold reserves through Gold Exchange Traded Funds (Gold ETFs). You invest your corpus in stocks of gold-producing and distributing syndicates, stocks of mining companies, and physical gold through ETFs. You can invest in gold funds with systematic investment plans (SIPs).
Here, your fund’s net asset value (NAV) corresponds to the underlying ETF’s performance. Since gold ETFs park your funds in gold bullion to earn returns, your gold MFs are pegged indirectly to gold prices. When gold prices fluctuate, so does your gold fund’s NAV.
Now, read on to understand why you should make gold fund investments.
Flexibility in investment amount
Unlike physical gold, you don’t need to shell out a large sum for your gold fund investment. You can invest in gold mutual funds online with systematic investment plans worth as low as Rs. 500, as per your financial fitness.
High liquidity
Gold funds are highly liquid investments, meaning you can quickly trade your stocks. Also, gold funds have no lower limit on the amount you can redeem. You can buy or sell your units on any working day during market hours. However, remember that when you sell, the NAV for the previous day is considered. Your money reaches your account in 2-3 days.
Safety in investing
Gold mutual funds are regulated by the Securities and Exchange Board of India (SEBI) and are safe investment avenues. SEBI routinely tracks and reports on these funds’ performance to help investors measure the risk and predict returns accordingly.
Shield against inflation
A diverse investment portfolio helps weather an economic storm. With gold funds, you not only expose your profile to gold but also significantly mitigate overall market risk. How? As a physical asset, gold guarantees returns when stocks correct themselves.
However, the yellow metal’s performance isn’t permanent or long-term, and its prices can flat-line across periods. So, you can use gold funds as hedging tools and invest in the schemes dynamically. This means, during volatile market phases, you can stay invested in the fund but reduce your exposure in gold towards other asset classes when the risk fades.
Low-cost investment
Investing in gold funds eliminates the hassle of storing physical gold and paying storage-related costs for the same. And apart from the exit load, you are only charged a SEBI-capped expense ratio.
Over to you
If you want to invest in gold funds, download investment apps like the Money App online. You can use these apps to build a diverse portfolio considering your risk appetite, financial goals, and investment horizon.
