What is a Gold Fund?
Mutual Funds can be defined as a portfolio of shares that are pooled from multiple investors. A Gold Fund is a mutual fund or ETF (Exchange-Traded Fund) that invests predominantly in gold bullion or gold-producing companies. In case the fund invests primarily in bullion, or in stocks and bonds of gold manufacturers and miners, the price of the shares within these funds will majorly correlate to the spot price of gold. The objective of this fund is to get returns from gold investments in a convenient way.
Gold funds can be an ideal investment tool for anyone who wishes to protect their capital against inflation or political instabilities. Gold funds can be of different types and they have been briefly explained below:
- Gold ETFs - The underlying asset in these type of funds is physical gold and hence, its value is dependant on the price of gold. Gold ETFs are ideal for investors who wish to invest in physical gold but do not want the hassle of storing or securing the gold against theft. A demat account is a must to invest in Gold ETFs.
- Gold Mining Funds - These funds do not invest in physical gold but instead make investments in companies that are involved in the mining of gold. The returns from these funds depend on the performance of these gold mining companies.
- Gold Fund of Fund - These funds make investments in the units of Gold ETF and investors do not require a demat account to invest in its units.
Benefits of Investing in a Gold Fund
- Investing in Gold Mutual Funds gives investors the benefit of exposure to the gold asset in an easy way.
- Investors can invest in the precious metal without having a Demat Account.
- Units of gold funds can be bought and sold at any time during business hours and from any part of the country due to which GST will not apply for the difference in the gold price.
- Investors can reap the benefits of the potential value of gold without actually possessing tangible gold.
- Gold funds can be used as a hedge against geopolitical instabilities and inflation.
- It is a convenient way to diversify your investment portfolio.
- It is a safe investment option as gold rates do not witness fluctuations too often.
- Gold ETFs allow easy trading through a stock broker or a fund manager.
- As there is no entry or exit system for buying the units of gold funds, they are very economical.
- Gold is a good investment as a bet against a falling currency.
- Gold funds that have been subscribed to for more than a year can reap capital gains over the long term. These funds also do not attract wealth tax or securities transaction tax.
- You can use gold ETFs as a collateral while borrowing money from a bank or a financial institution.
- Since each unit of gold ETFs are backed by pure gold prices, there is no risk to the purity.
List of Gold Funds in India
Growth Gold Mutual Funds - The growth option of gold funds will help investors achieve capital gains at the end of the investment period.
Dividend Gold Mutual Funds - The dividend option will offer regular income to the investor in the form of dividends. The dividends can be given out as payouts or can be reinvested back to the scheme.
Some of the top gold funds in India have been given below:
- Axis Gold Fund
- Aditya Birla Sun Life Gold Fund
- Canara Robeco Gold Savings Fund
- HDFC Gold Fund
- ICICI Pru Regular Gold Savings Fund
- IDBI Gold Fund
- Invesco India Gold Fund
- Kotak Gold Fund
- Quantum Gold Saving Fund
- Reliance Gold Savings Fund
- SBI Gold Fund
How is the performance of a Gold ETF measured?
The performance of a Gold ETF is measured by an indicator known as ‘tracking error’. It is a measure of the divergence between the ETF’s performance and the performance of the benchmark it mirrors. The lower the tracking error, the better is the ETF.