Gold has long been a symbol of wealth and stability. Traditionally, people invest in physical gold, but in the modern financial landscape, there is a more convenient and diversified way to harness the benefits of gold – Gold Mutual Funds. Let us explore Gold Mutual Funds, understand what they are, their benefits, who should consider investing in them, and much more.
What is a Gold Fund?
A Gold Mutual Fund is a fund that primarily invests in various forms of gold, such as physical gold, gold-related securities, and mining stocks. These funds provide a convenient and cost-effective way for investors to add gold exposure to their portfolio without owning physical gold.
Benefits of Investing in Gold Mutual Funds in India
- Diversification: Gold Mutual Funds allow investors to diversify their portfolios, reducing overall risk. Gold is often considered a safe investment when stock markets face downturns.
- Professional Management: These funds are managed by experienced professionals who make investment decisions based on market conditions. This can result in better returns compared to individual investments in gold.
- Liquidity: Selling gold jewellery or coins can be cumbersome and may lead to a loss due to making charges or differences in buy-sell prices. Gold Mutual Fund units, however, are highly liquid and can be easily bought or sold.
- 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.
Who Should Invest in Gold Funds?
Gold Mutual Funds can be an ideal choice for several types of investors:
- Portfolio Diversification: Investors looking to diversify their portfolios can benefit from investing in gold funds since, as gold is commonly regarded as a secure investment during stock market downturns.
- Individuals Looking to Buy Physical Gold: Those who plan to buy physical gold in the future, such as for weddings or other significant events, can start investing in Gold Mutual Funds and then redeem when needed.
- Long-Term Investors: As gold tends to appreciate over time, long-term investors looking for wealth preservation can include gold funds in their investment strategy.
How to Invest in Gold Funds?
Investing in Gold Mutual Funds is straightforward on the Bajaj Finserv platform:
- KYC Completion: Ensure your KYC (Know Your Customer) formalities are complete with the fund house.
- Choose a Fund: Start by selecting a Gold Mutual Fund that aligns with your investment goals and risk tolerance.
- Invest: Invest the desired amount in the fund through lump-sum or SIP (Systematic Investment Plan) mode.
- Monitor: Keep track of your investments and monitor your fund's performance over time.
How are Gold Mutual Funds different from Gold ETFs?
As an investor, it is essential to recognise the significant differences between Gold Mutual Funds and Gold Exchange-Traded Funds (ETFs). Here is what sets them apart:
- Investment Method: Gold ETFs are acquired on stock exchanges much like equities, requiring the registration of a Demat account. In contrast, Gold Funds can be purchased directly from the respective fund house, like various other mutual funds, without the need for a Demat account.
- Transaction Costs: Trading Gold ETFs typically involves no associated fees. Gold Mutual Funds, however, may impose an exit load if you intend to redeem your units during the specified lock-in period.
- Liquidity: Gold ETFs boast better liquidity due to their listing on stock exchanges. Since they do not impose exit loads, you can buy and sell units at any time during market hours. Gold Mutual fund units, on the other hand, can be redeemed by selling them back to the mutual fund at the current NAV.
- Pricing: Gold Mutual Fund units and Gold ETFs have distinct pricing mechanisms. Gold Mutual Fund unit prices can be observed through the NAV, reported at the end of the trading day. Conversely, Gold ETFs are traded on stock exchanges, providing real-time price updates.
Gold Mutual Funds make it easier for investors to harness the benefits of gold in a convenient, professional, and diversified manner. While investing in gold, as with any investment, carries its own set of risks, these funds can play a valuable role in wealth preservation and portfolio diversification, making them a worthy addition to your investment portfolio.