Mutual Funds
by 5paisa Research Team Last Updated: 2023-06-30T15:57:10+05:30
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As the name suggests, these mutual funds invest in physical gold, which means that your money will be stored safely in vaults of authorized banks. The gold stored in these vaults is insured by the government of India, which means that you are covered against any damage or theft.


What is a Gold Fund?

Gold mutual funds in India are a relatively newer concept and have been around for only two decades. These funds invest in gold and gold-related instruments such as bullion, coins, etc. It is a non-government-controlled gold investment instrument that helps individuals invest in physical gold without the hassles of buying it physically or investing in Gold ETFs.

Gold has been one of the most valued asset classes over the last five centuries. It has always been considered an asset that can hedge against inflation and other economic uncertainties. These types of Mutual funds are one of the most popular investment schemes amongst investors in India. The main reason behind its high popularity is the tax benefits it offers. Gold Mutual fund investments are eligible for long-term capital gains tax which means that you can hold the asset for more than one year without paying any tax.


Many investors in India prefer investing in gold mutual funds because of the Gold price volatility. Some other advantages include liquidation facility, transparency and low cost of transactions.


Benefits of Investing in Gold Mutual Funds in India

There are various advantages of investing in gold mutual funds. Let us find out as mentioned below:

● Protection from Inflation: The main advantage is that you may increase the return on your investment while protecting your cash from inflationary pressures. This is also a good way to save money for long-term objectives. Due to their finite supply, gold prices have always been on the increase, making them a strong choice for long-term investments.

● Flexibility of Investments: Gold Mutual Funds also provide flexibility by enabling investors to monitor their mutual fund investments utilizing SMS functionality, a round-the-clock phone support service, and numerous internet access options including a website, chat, email, etc.

● Easy to Track: Investors may always check the current fund value on the internet or by calling their toll-free number, which makes it easier for them to keep track of their portfolio values as needed. Investors may better understand when to sell their gold mutual funds and when to purchase more using this tracking strategy.

● Liquidity: The ability to redeem mutual fund units whenever they wish for par value is another advantage that draws many investors. If an investor stops investing after making a Rs. 50,000 investment, he would receive his whole money back. All sorts of investors may easily and conveniently use the assets thanks to the redemption option.

● Safer Investment: For investors, gold has traditionally been a secure investment choice. Due to their accessibility, liquidity choices, and low cost, gold mutual funds are also quite popular with investors.


Who Should Invest In Gold Funds?

Gold funds are excellent for reducing investment risk and diversifying portfolios. The Securities and Exchange Board of India (SEBI), which oversees the market, regulates it, reducing the risk of investing in mutual funds. Because they are immune to changes in the financial markets, gold funds are generally steady and appealing to conservative investors.


How to Invest in Gold Funds?

At 5paisa, investing in gold funds is hassle-free and paperless. You may begin your investing journey by using the steps below:

● First, log in to your Demat account through 5paisa
● Then, fill out all the necessary information such as your personal details, investment objectives, etc.
● The next step is to finish your e-KYC, the verification shall take a few minutes.
● You can then choose to invest in the hand-picked gold fund that you find to be the most appealing.


Fundamentals about Gold Mutual Funds

Gold mutual funds are managed funds which means that a fund manager would invest your money on your behalf. There are no restrictions on the minimum amount required for investing in Gold Mutual Funds. This investment can be made through a Demat account or a standard savings bank account. You don't need to maintain a separate account for these funds.

All gold mutual funds have an initial lock-in period of three years, and there is no exit load if you redeem your units before the end of this period. However, exiting before three years might attract other penalty charges. You can save any number of units from these funds at any point in time, provided that the redemption value does not exceed your total investment in that particular fund.

Gold mutual funds invest in physical and paper gold and provide a return on investment. Gold funds can be a part of your portfolio to hedge against inflation and diversify the asset class. The returns from Gold Mutual Fund are taxed the same way as the returns from other mutual funds.


Categories of Gold Mutual Funds

An exchange-traded fund (ETF) is a type of exchange-traded fund which tracks the price of gold bullion. Mutual Funds invest in gold certificates from trusted banks stored in their vaults for safekeeping.

Gold ETFs invest in gold bullion, which is stored in the custodian's secure vaults for safekeeping. The difference between Physical Gold and Paper Gold is that while Physical Gold is stored in a vault, Paper Gold is just a certificate or an entry in a book that says that a certain amount of gold has been held at a particular place. In simple terms, Physical Gold needs to be stored somewhere, while paper gold needs not to be stored anywhere.

Gold mutual funds, like other mutual funds, allow investors to pool their money and invest in various stocks and bonds. The main difference is that gold mutual funds invest in gold, giving investors exposure to the price movements of the yellow metal without having to store and secure it themselves.

The value of gold can be highly volatile due to factors such as inflation or geopolitical events. But many investors believe that the price of gold tends to increase, moreover other investments such as stocks and bonds over the long term.


List of Gold Funds in India

Following is the list of trending gold funds in India. Please note the following information has been updated till October 2022 and is subject to change as per market conditions. Kindly invest in these funds based on your risk appetite and financial objectives.


Name of the Fund

AUM (in Rs. Cr)

1Y CAGR  (%)

3Y CAGR (%)

Till Date CAGR  (%)

Expense Ratio

SBI Gold Fund (G)

1138.209 Cr





HDFC Gold Fund

1332.261 Cr





Nippon India Gold Savings Fund

1392.84 Cr





Kotak Gold Fund

1295.517 Cr





Axis Gold fund

256.915 Cr






How are Gold Funds different from Gold ETFs?

You should be aware of the key distinctions between gold funds and gold exchange-traded funds (ETFs) as an investor. The following things set them apart:

● Investment: Units of gold ETFs can be bought from the stock exchange in the same way that equities shares are. However, in order to invest in these funds, you must first register a Demat account. Unit of gold funds can be purchased from the appropriate fund house similarly to certain other mutual funds without the necessity for a Demat account.

● Transaction Fees: Trading in gold ETFs has no fees associated with it at all. If you intend to redeem your units during the specified lock-in period, gold funds may impose an exit load.

● Liquidity: Gold ETFs have better liquidity than gold funds since they are listed on stock exchanges. Because the former does not impose exit loads, you can purchase and sell units at any time during market hours. Gold fund units could be redeemable by reselling them to the mutual fund at the current NAV.

● Expense Ratio: The cost of administering gold funds is higher than that of gold ETFs. Because gold funds invest in gold ETFs, the expense ratio of the gold fund would include the latter's expenditures.

● Pricing: Gold fund units are priced differently than gold ETFs. The price of gold fund units may be seen via the NAV, which is reported at the conclusion of the trading day. However, because gold ETFs are traded on the stock exchange, you may obtain real-time price updates.


Taxability Factor

Gold investments are taxed similarly to gold jewellery and include a time-based investment component. A short-term investment is one with a duration of under three years. Taxes are calculated by combining the revenue with the investor's total income. Gold funds are subject to 20% taxation for investments made for a period longer than three years.

If you're looking for a way to invest in gold but don't want the hassle of storing and protecting it, a gold mutual fund might be a good option for you.

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