Want to invest in gold via MFs? Read this before betting on the yellow metal

by 5paisa Research Team Last Updated: 2022-02-24T17:07:22+05:30

Indian stock indices, which had scaled new highs last October and tested the levels in January, have reversed their trajectory since then. On Thursday, the local markets saw serious bearish sentiments due to the outbreak of war between Russia and Ukraine, taking the market down by around 10% from the peak.

The bloodbath did not just have an impact on global equity markets but also crypto as a neo-asset class. But as expected, the price of gold shot up. Seen as a counterplay on equity and as a safe haven commodity during uncertain times, the gold price has breached the Rs 51,000 per 10 gm mark, shooting up around 2% on Thursday.

Indeed, gold futures indicate further upward momentum. This is not just because of the escalating war situation in Europe but also as investors switch from equity to gold.

On the flip side, if the geopolitical tension in Europe recedes it may have a sharp downward impact on the price of the yellow metal.

So how does one play the bullion game? We looked at funds investing in gold and how they have fared over time.

The best-performing gold fund and exchange-traded funds (ETFs) have been poor performers, churning out annual returns of just under 5%. This means gold should not be chosen as a long-term buy-and-forget asset class.

If we shrink the investment period and then gauge the performance, most equity funds beat the 10-11% returns generated by gold funds. In fact, the technology and small-cap mutual funds churned out returns of around 27% and 15%, respectively.

Gold funds did manage to perform far better over a three-year period with the best performers pumping out returns in the 14% level. However, when compared with several equity funds that have generated returns in the 25%-plus range, the return from gold funds looks puny.

What this shows is that anyone playing gold as a commodity and funds therein, should look at it as a short-term play and to park money in volatile times or as a risk aversion and portfolio risk diversification strategy.

Some of the best-performing gold ETFs include those managed by IDBI and Invesco, besides Aditya Birla MF, Axis MF, SBI MF and ICICI Prudential. Those looking for direct plans can consider funds managed by Kotak MF and Invesco.

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