Gold Funds are a convenient way to invest in gold as an asset class without having to hold the commodity in a physical form. Gold Mutual Funds is a mutual fund that invests predominantly in gold bullion or gold-producing companies. These funds can be an ideal investment tool for anyone who wishes to protect their capital against inflation or political instabilities.

Gold is considered one of the safest havens for investment purposes. The underlying reason is the significant growth rate in gold prices in the last decade. But to the sheer disappointment of investors, recently even this shining metal has fumbled.

Gold funds are especially beneficial at the time when there exists an uncertainty in equity markets. For instance, January 2008 witnessed a crash in equity markets. During that period, it was the gold mutual fund’s category that displayed the best performance. This is why gold funds have topped the return chart after a pause of 3 years.

How does Gold Mutual Funds work?

A gold fund is an open-ended fund that invests in units of a Gold ETF(Exchange Traded Fund). The basic aim of the fund is to create wealth by tapping the potential of gold as a commodity. It is suitable for investors who have a desire to take exposure to gold.

You may enjoy the similar benefit of holding gold physically along with professional fund management. Each gold fund would have a fund manager who would take responsibility for making appropriate investment decisions as per the objective of the fund. The returns of a gold fund may closely correspond to that of gold ETF. Additionally, the Net Asset Value (NAV) of the fund may be influenced by the overall price movement of gold in the market.

How Gold Mutual Funds are different from Gold ETFs?

As an investor, you need to know the significant differences between gold ETFs and gold funds.

  • Pricing

    Units of gold funds are priced differently as compared to gold ETFs. You may see the price of gold fund units by way of NAV which is disclosed at the end of the trading session. However, as gold ETFs are listed on the stock exchange, you can get real-time updates about their price.

  • Investment mode

    Just like equity shares, you can purchase units of gold ETFs from the stock exchange. However, you need to open a Demat Account to invest in them. Similar to other mutual funds, units of gold funds can be bought from the respective fund house without requiring the need of a Demat Account.

  • Systematic investment plan (SIP)

    You can invest in gold funds using SIPs. However, gold ETFs do not entertain SIPs. You can read more aboout sip calculator

  • The minimum amount of investment

    Owning one unit of gold ETF is equal to owning 1 gram of gold. Thus, the minimum investment amount in gold ETF depends on the prevailing price of gold in the market. As regards gold funds, you can start SIP of a nominal amount of as low as Rs 1,000.

  • Transaction cost on Gold mutual funds

    There are no transaction costs, in particular, while investing in gold ETFs. However, gold funds may charge an exit load if you redeem your investment within the said lock-in period.

  • Expense ratio

    The expenditure involved in managing gold funds is more than gold ETFs. As gold funds invest in gold ETFs, so the expense ratio of the former would include expenses of the latter.

  • Liquidity of gold mutual funds

    On account of being listed in the exchange, gold ETFs offer higher liquidity than gold funds. As the former does not charge any exit loads, you can buy/sell the units at any time during the market hours. Units of gold funds can be redeemed by selling them back to the fund house based on the NAV for the day.

Benefits of Investing in a Gold Mutual Funds

  • 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.
  • 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 stockbroker 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 collateral while borrowing money from a bank or a financial institution.
  • There is no risk to the purity of the gold, You are directly investing in Gold ETFs and gold mutual funds and not having it in physical form.

Top 4 Gold Mutual Funds in India

While selecting a fund, you need to analyze the fund from different angles. Various quantitative and qualitative parameters can be used to arrive at the best gold funds as per your requirements. Additionally, you need to keep your financial goals, risk tolerance meter and investment horizon in mind. The best  4 gold mutual funds are:

  1. Reliance Gold Saving Fund-Growth
  2. Kotak Gold Fund-Growth
  3. Axis Gold Fund-Growth
  4. SBI Gold Fund- Growth

Reliance Gold Saving Fund-Growth

AMC NameReliance Mutual Fund
AUM₹670 Cr.
Net Assets₹642.01 Cr.
TypeOpen-Ended
Investment planGrowth
Minimum Investment₹5000
NAV₹14.42
Expense Ratio1.26%
Minimum SIP₹100
Entry load0%
Exit Load2%

Kotak Gold Fund-Growth

AMC NameKotak Mahindra Mutual Fund
AUM₹141 Cr
Net Assets₹131.06 Cr
TypeOpen-Ended
Investment planGrowth
Minimum Investment₹5000
NAV₹14.32
Expense Ratio0.55808898%
Minimum SIP₹1000
Entry load0%
Exit Load2% on or before 6 months, 1% if redeemed after 6 months but before 1 year and Nil if redeemed after 1 year.

Axis Gold Fund-Growth

AMC NameAxis Mutual Fund
AUM₹49 Cr
Net Assets₹45.52 Cr
TypeOpen-Ended
Investment planGrowth
Minimum Investment₹5000
NAV₹10.79
Expense Ratio0.89572995%
Minimum SIP₹1000
Entry load0%
Exit Load1% for redemption within 1 year

SBI Gold Fund- Growth

AMC NameSBI Mutual Fund
AUM₹318 Cr
Net Assets₹304.52 Cr
TypeOpen-Ended
Investment planGrowth
Minimum Investment₹5000
NAV₹10.84
Expense Ratio0.52%
Minimum SIP₹500
Entry load0%
Exit Load1% for an exit within 1 year of allotment and Nil if redeemed after 1 year

Conclusion

Thus, it will be beneficial for investors to invest in gold funds only if they analyze the effects of investment therein. It would be better to make a diverse portfolio of investments by consulting an investment professional.

We provide great-in-deal mutual fund services. For knowing the services of mutual funds do visit our website WealthBucket.We render several services in a mutual fund like equity fundssmall-cap funds or multi-cap fundsShort Term Mutual Funds and many more.

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These funds have been shortlisted by undertaking certain parameters like AUM, NAV, past performances, peer average returns, etc. All the data is updated and is dated 9 July 2019.