Gold Mutual Funds

Gold mutual funds are investment instruments that pool funds from multiple investors to purchase gold bullion or gold-related securities. Read the full blog to know more.
4 mins read

Gold mutual funds are funds that pool money from investors to buy gold or gold-linked securities. This gives you exposure to gold's price movements, minus the hassle of storing and securing physical gold. 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

Let us explore the advantages of investing in gold mutual funds:

  1. 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.
  2. 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.
  3. 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.
  4. No storage hassles: With physical gold, safe storage can be a concern. Gold Mutual Funds eliminate this issue as they are held electronically.
  5. 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 shoul Iinvest 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.

Categories of gold mutual funds


There are not really distinct categories of gold mutual funds in the way there are for equity or debt funds. However, there are a few different ways gold mutual funds can be structured:

  • Gold ETFs (Exchange Traded Funds): These function similarly to stock ETFs. They hold physical gold bullion, and the price of a unit in the fund directly reflects the price of the underlying gold.
  • Gold Funds of Funds (FoFs): These invest in other gold ETFs or gold mutual funds. This adds an extra layer of management fees but can offer diversification across different underlying gold holdings.
  • Actively managed gold funds: These are managed by fund managers who actively buy and sell gold futures contracts, gold mining company stocks, or a combination of both, aiming to outperform the gold price.


Gold mutual funds taxability


Gold mutual funds are classified as debt funds for taxation purposes in India. This means:

  • Short-term capital gains (STCG): If you sell your units within 3 years of purchase, the gains are added to your taxable income and taxed according to your income tax slab.
  • Long-term capital gains (LTCG): If you hold your units for more than 3 years, you benefit from a lower tax rate. Gains exceeding Rs. 1 lakh are taxed at 20% with indexation, which adjusts for inflation. This can significantly reduce your tax burden.


Additional points to consider:

  • Dividend payouts from gold funds are also taxed as income according to your tax slab.
  • There is no Securities Transaction Tax (STT) applicable when buying or selling units in gold mutual funds.

Remember, tax laws can change, so consulting a financial advisor for the latest information is recommended.

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.

How to invest in gold funds?

Investing in gold mutual funds is straightforward on the Bajaj Finserv platform:

  1. KYC completion: Ensure your KYC (Know Your Customer) formalities are complete with the fund house.
  2. Choose a fund: Start by selecting a gold mutual fund that aligns with your investment goals and risk tolerance.
  3. Invest: Invest the desired amount in the fund through lump-sum or SIP (Systematic Investment Plan) mode.
  4. Monitor: Keep track of your investments and monitor your fund's performance over time.


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.

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Frequently asked questions

What is a gold mutual fund?

Think of it as a shared pot of gold. Gold mutual funds collect money from investors and use it to buy gold bullion, gold securities, or even gold mining company stocks. This lets you own a piece of the gold market without the burden of physical storage.

Is it safe to invest in gold mutual funds?

Generally, gold is considered a safe haven during economic downturns. However, gold prices can fluctuate. Gold mutual funds themselves are well-regulated, but the investment carries inherent market risk.

What is the benefit of a gold SIP?

A Systematic Investment Plan (SIP) lets you invest a fixed amount regularly in a gold mutual fund. This benefits from rupee-cost averaging, potentially smoothing out price fluctuations over time.

Which is better, gold or a gold mutual fund?

Gold mutual funds offer a more convenient and secure way to own gold. You avoid the hassles of storage and security risks. However, physical gold might offer some tax advantages depending on your situation.

How do I choose a gold mutual fund?

Consider your investment goals, risk tolerance, and investment horizon. Look for funds with low expense ratios and a good track record. Consulting a financial advisor can be helpful.

How are gold mutual funds taxed?

Gold mutual funds are taxed as debt funds in India. Short-term gains (within 3 years) are taxed according to your income slab. Long-term gains (over 3 years) benefit from a lower tax rate with indexation.