Invest in Gold Through Mutual Funds


by 5paisa Research Team Last Updated: Sep 15, 2023 - 12:59 pm 33.9k Views
Listen icon

Gold has forever been the favourite investment instrument of investors of all types, whether conservative or aggressive. While some use gold for pure investment purposes, others use it to hedge against wayward market movements.

The following sections mention the various benefits of investing in gold in 2022 and why a mutual fund is the best route to invest in yellow metal. This article also explains foolproof ways to find the best mutual funds to invest in gold.

Why Should You Invest in Gold Through Mutual Funds?

You can invest in gold in three broad ways - buy physical gold and store it safely, invest in gold mutual funds, or purchase gold Exchange-Traded Funds (ETFs). Sensible investors prefer gold mutual funds for the following reasons:

1. No Tension - When you buy physical gold, you need to rent a bank locker to store it safely. Conversely, if you keep it at your home, you have to bear the mental burden of keeping it secured. Gold mutual funds take away the pain of storing gold physically.

2. Invest From INR 500 - You can hardly think of buying gold with INR 500. But mutual funds let you do it seamlessly. You can open a SIP or Systematic Investment Plan account with INR 500 per month and invest as long as you wish to. 

3. Sell Anytime - When you store physical gold, you cannot sell it instantly. For example, while banks sell gold coins and bars, they do not buy them back. In contrast, mutual fund houses allow you to sell gold MF units anytime you want. However, if you sell the units before one (1) year, you may have to pay an exit load.

4. No Need For Demat and Trading Account - Unlike Gold ETFs, you do not need to open any Demat and trading account for buying gold mutual fund units. Financial institutions like 5paisa facilitate easy investing in gold mutual funds through the platform. You may also open a free Demat/Trading account for investing in Gold ETFs.

5. Hedge Against Market Movement - Gold mutual funds can help you hedge your investments like a pro. Generally, the stock market moves opposite to gold. And, if the stock market goes down, investors buy gold to keep their money safe. 

6. Higher Returns Than Gold - Unlike Gold ETFs or physical gold, gold mutual funds may actually give higher returns. Mutual funds generally react more slowly to changes than physical gold or ETF price. Hence, you can better cushion the impact of a fall in prices with a mutual fund.


How to Find The Best Gold Mutual Funds?

While platforms like 5paisa provide easy access to best-performing gold mutual funds, you must still evaluate the following factors before investing:

1. NAV - It's a common perception that a mutual fund with a lower NAV (Net Asset Value) is better than one with a higher NAV. But, since the NAV all schemes are adjusted as per their market value and value of assets, your capital growth will be similar if the percentage growth of two funds (one with a higher NAV and one with a lower NAV) remains the same.

When a new MF scheme is launched, the NAV is always 10. If the NAV of a scheme is high, it means it has been around for a long time and hence, has a proven track record. Read this blog to understand how to analyse NAV.

2. Pricing - The minimum investment amount for physical gold and Gold ETFs is the price of 1 gram of gold. Hence, if the current price of 1 gram gold is INR 5,000, you need to invest a minimum of INR 5,000 to buy gold or ETF.

In contrast, you can start investing in gold funds with an affordable amount of INR 500 (in a SIP scheme). However, it is wise to look at the minimum investment amount before investing.

3. Exit Load - Some gold mutual fund schemes charge an exit fee for withdrawals made before one, two, or three years from the entry date. The exit load might be between 1% and 3% of the total withdrawal amount.

The exit load, if applicable, reduces the effective returns from an MF scheme. So, before parking your money in a gold mutual fund, you must check the exit load and stay invested until the preferred duration to avoid paying such charges.

4. Liquidity - Gold mutual funds are less liquid than Gold ETFs but more liquid than physical gold. While Gold ETFs are traded on the exchange, you can sell them anytime during the market hours. In contrast, you cannot sell gold mutual fund units in the open market.

You can only sell them back to the fund house offering the fund. And, when you sell the units, the NAV of the fund on the sale date applies for the calculation of the withdrawal proceeds. This being said, most gold mutual fund schemes are 100% liquid, and you can place a withdrawal request 24x7, 365 days a year.

The End Note

Investing in gold mutual funds can be blissful when you tie your investment with a life goal. It is also advisable to understand the ups and downs of the market to make a perfect entry. Gold mutual funds' value usually increases when the capital market witnesses a heavy outflow of funds.

Conversely, they fall when investors move to the equity market. Hence, choosing the right investment time is often more challenging than finding the best fund to invest in.

Visit 5paisa to compare the returns of top-performing gold mutual funds before investing and get a slice of the yellow metal sans the tension of renting a bank locker.

How do you rate this blog?


Start Investing in 5 mins*

Rs. 20 Flat Per Order | 0% Brokerage


About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.

Open Free Demat Account
Resend OTP
Please Enter OTP
Mobile No. belongs to

By proceeding, you agree to the T&C.

Latest Blogs
Stock In Action: Hindustan Aeronautics Ltd

Movement of the Day: Rationale Behind HAL Stock Surge: The recent spike in Hindustan Aeronautics Limited (HAL) stock can be attributed to the Defence Acquisition Council's (DAC) approval for the acquisition of Light Combat Helicopter (LCH) and Light Combat Aircraft (LCA) Mk 1A. 

Rekha Jhunjhunwala & Association

"India, a land of opportunities, boasts one of the world's most popular stock markets. Within its dynamic landscape, the stock market presents significant potential for wealth accumulation for those who navigate it skillfully. Yet, it's essential to acknowledge the inherent risks; only a select group of accomplished traders consistently achieve profits.

Market Outlook for 05 December 2023

Nifty started the week with a huge gap up post the state election outcome over the weekend. The index extended its upmove at all-time highs and ended the day just below 20700 with gains of a couple of percent.