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An overview of Gold Mutual Funds
by 5paisa Research Team 22/11/2021

Currently, there are various gold investment options available for investors. In this article, we will have a look at gold funds.

Conventionally, Indians have an eternal love for the yellow metal. In India, every type of individual possesses some quantity of gold. Presently, there are various modes through which an individual can invest in gold such as gold mutual funds, Gold ETFs, Sovereign Gold Bonds (SGBs) and the last mode, also the most popular one i.e, physical gold. Nevertheless, physical gold has many drawbacks like storing gold safely in a safety vault or bank lockers, which adds extra cost, no flexibility in investment amount, purity issues, etc. Investors can avoid these drawbacks by investing in gold digitally.

In this article, we are going to take look at Gold Mutual Funds.

Gold mutual funds are open-ended funds. The value of the fund is directly dependent on the price of gold. Even a slight change in gold’s global market price can cause changes in the prices of gold and the funds investing in gold. This scheme mainly invests in Gold ETFs, which in turn, invests in physical gold of higher purity.

What should investors know before investing in gold funds?

Returns: Returns are quite low as compared to equity. These funds offer higher returns when the market is facing drawdown whereas higher returns when the market is high.

Dynamic portfolio allocation: Ideally, investors should choose to invest in gold but you should just allocate a little part of your portfolio towards gold as it is considered a hedge against inflation. Investors should change asset allocation according to the behaviour of the market. When the market is facing depression, then investors should allocate a higher proportion towards gold, and when the market recovers, then investors should switch to other asset classes, which will reap better returns.

Safer than owning physical gold: It is safer than physical gold as by investing in these funds, you don’t have to worry about the storage. You can invest small amounts as low as Rs 500, which allows even those individuals to invest, who cannot afford to purchase physical gold.

Taxation: Any capital gains arising on these funds vary depending upon the term of the investment. If any capital gains arising are less than three years, then it will be short-term capital gain, which will be taxed as per Income Tax slabs. If capital gains arising are more than three years, then it will be long-term capital gain, which will be taxed at the rate of 20%. 

Following table depicts the best performing gold mutual funds on the basis of three-year along with its AUM and Expense ratio:

Fund Name  

3-Year Return  

AUM  

Expense Ratio  

Kotak Gold Fund  

16.54%  

₹1,098.30  

0.18%  

SBI Gold Fund  

16.12%  

₹1,198.00  

0.10%  

Nippon India Gold Savings Fund  

15.63%  

₹1,437.10  

0.10%  

HDFC Gold Fund  

  

15.63%  

₹1,261.10  

0.15%  

Quantum Gold Saving Fund  

15.43%  

₹70  

0.06%  

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