Gold Mutual Funds: Everything You Need to Know Now

Insights into Gold Mutual Funds

Did you wish to buy gold but worry about the prices going high? Here is an amazing alternative to store gold. The Gold Mutual Funds are a cheap and easy way to own gold without actually buying real gold.

Sounds too good to be true. Yes, it is actually possible to become the owner of gold without worrying about keeping it safe.

In this article, you will get the definition of gold funds. Moreover, a detailed description of how these funds work and the advantages of investing in them.

Let’s start by looking at the simple definition of Gold funds or Gold ETFs.

Meaning of Gold Mutual Funds

A gold mutual fund is an investment medium that invests in assets related to gold. These assets may include:

1. Physical Gold: Physical gold in bar form or coin denominations to capture include the measurements in kilos or grams.
2. Gold ETFs:ETFs that hold the actual gold and replicate the index of gold price.
3. Gold Mining Stocks:Equity securities of the mining and production of the precious metal.

A few gold funds carry Fund of Funds (FoFs), that is, invest in other gold-based mutual funds and ETFs. This makes it a way of diversifying the gold market without actually dealing with gold physically.

Next, you will see how the funds of this special work.

How Do Gold Mutual Funds Work?

The Gold funds, like other mutual funds, invest primarily in gold. Let’s see how it works:

1. Investment Pooling: This way, gold funds collect funds from several investors. They form a pool through which it would be easy to purchase more substantial gold products.
2. Managed by Experts:Professional fund managers closely observe market conditions. They give you the best possible deals in the market. Plus, the liabilities associated with investing in gold.
3. Diversified Allocation: The fund is typically invested in physical gold, gold trackers, and stocks in gold mining firms. Thus, giving the investor diverse methods to get in touch with the gold market.
4. Liquidity: Another advantage of auto-trading with gold funds is that, unlike physical gold which is sluggish and firmly tied into one form. Gold funds are quite easy to trade with as one can buy or sell them easily at will.

Now, let’s see the numerous benefits of investing in gold funds or gold ETFs.

Advantages of Gold Mutual Funds

Here are some key merits of including gold funds in your portfolio:

1. Protection Against Inflation: Traditionally, gold goes up as an inflation hedge. Due to inflation, currencies are always devalued while gold maintains or even appreciates hence is a good hedge against inflation.
2. Portfolio Diversification: Currently holding gold in a portfolio can reduce risk as this asset type is inversely related to the traditional types of investments such as stocks and bonds. This implies that gold can be a good-performing asset when most other assets are going bad.
3. Ease of Access:Thus, gold mutual funds are an excellent way of investing in gold, sparing you the difficulties of owning and protecting physical gold.
4. Professional Expertise: Experts who have relevant knowledge about the gold market run such funds. Their knowledge is useful in making the right investment decisions for these investors.
5. Cost-Effective: Gold mutual fund offers certain advantages over the direct purchase of gold since it implies relatively low transactional costs when compared with other methods such as buying physical bullion, which can attract additional premiums, and other costs.
6. Tax Advantages:Long-term capital gains realized from gold funds in many countries including India. These are taxed at concessional rates more favorable than short-term capital gains.

It is important to note how the tax will be applied if you invest in these funds. You will get the answers to the below question.

Taxation of Gold Mutual Funds In India

Gold funds are categorized as non-equity investments for tax purposes:

1. Short-Term Capital Gains (STCG): If you redeem your investment within three years, the profit is taxed as per income tax percentage rate.
2. Long-Term Capital Gains (LTCG):For such investments, the holding period is more than three years. Gains attract a tax of 20% while investors enjoy indexation benefits.

Lastly, you will see the important parameters that will take you a step closer to this mutual fund category.

Which Gold Mutual Fund to Choose?

The following points should be considered while investing in these gold-related assets:

1. Define Your Objectives:It is important to note whether you want to protect wealth or grow it. Perhaps then you can stick to the Investment options.
2. Research and Compare Funds: Research and review numerous gold mutual funds. It includes how they have faired in the last years, their cost structure and their fund managers.
3. Evaluate Risk Tolerance: Think about what you feel comfortable with levels of risk. Then decide whether or not the returns of the fund align with those feelings.
4. Check Liquidity: Be certain that the fund provides liquidity. This should match according to your investment power and era.

Final Words

In a nutshell, this category gives you an easy way to buy gold without the worry of safekeeping it. However, gold funds are also prone to experience changes in return rates due to falls and rises in the price of actual gold.

Thus, starting your investments via SIP is probably the best strategy. Also, make sure you keep investments for the long term like 5-7 years. This will give the necessary time for them to grow and give potential returns.