Gold Mutual Funds: A hedge investment against any kind of market volatility
Investing these days in India is on the rise. The New Indian middle class is quite keen on investing, which is quite the opposite trend compared to their previous generation. The older generation was suffering from saving gluts, (an obsession of excessive saving), which has resulted in the preservation of wealth rather than the creation of wealth. But these days, several options available to the investor to invest in the capital market. But one can simply start with the Mutual Fund. One such unique mutual fund scheme available in the market is Gold Mutual Fund.
A Gold Mutual Fund is a mutual fund or ETF that invests predominantly in Gold bullion, gold producing companies. These funds invest in physical gold and offer investors the convenience of buying pure gold at low cost. The objective of this fund is to get a return from the gold investment in the convenient way. But few know the facts, how the Gold Funds work. Let’s look at the process of How Gold Funds Work.
How Gold Funds Work:
Gold fund is an open-ended fund, which invests in units of a gold exchange traded fund or ETF. The main purpose of the fund is to create wealth by tapping the potential of gold, which is a commodity. It is an ideal investment tool which helps in protecting the capital against inflation or any political instability. It is quite convenient to invest in gold via gold ETF, instead of holding the commodity in a physical manner. There are different kinds of gold fund for different kind of investor:
- Gold ETF: A Gold ETF is an exchange traded fund or a commodity, which mainly consist of only one asset i.e. Gold. These units are traded on the exchange on the stock. It is an ideal investment for those who wish to invest in physical gold, but don’t want the hassle of storing the gold.
- Gold Mining Fund: As the name suggests, these funds invest in the companies of the Gold mining. The returns on these funds depend upon the performance of these mining companies.
- Gold Fund of Fund: Gold Fund of Fund mainly invests in the units of the Gold ETF. An investor doesn’t require a demat account to invest.
But as an investor, one should know the difference between the Gold ETF and Gold Fund. The basic difference between them is pricing, Gold Funds are priced differently as compared to the Gold ETF. An investor can see the price of gold fund units by way of NAV disclosed at the end of a trading session. In the case of ETF, an investor needs to have a demat account to buy it, whereas in the case of the mutual fund, one doesn’t require any demat account. A Gold funds allow an investor to use SIP to invest, whereas in the case of Gold ETF, Sip is not an option. But there are various benefits of investing in Gold Fund.
- Gold provides a hedge against any market downturns or volatility. It’s one of the best hedges against inflation.
- An investor can invest in these funds without having a demat account.
- If an investor can invest for more than one year, then they can reap the benefits of long-term capital gains tax.
- Despite having lower return, Gold Fund is a good investment due to less fluctuation in the prices, even in the case of market volatility.
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*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.