Gold Mutual Funds in India: Benefits, Types & How to Invest

What is a Gold Mutual Fund?

A gold mutual fund is an open-ended mutual fund that invests primarily in Gold Exchange Traded Funds (Gold ETFs). Since Gold ETFs hold physical gold of high purity, the fund's performance generally follows the movement in gold prices.

Unlike physical gold, you do not need a locker or insurance. You simply invest through your mutual fund account and your units are held electronically.

Benefits of Investing in Gold Mutual Funds

Gold mutual funds offer several benefits for different types of investors.

• Start investing with a small amount through SIPs or lump sum investments.
• No need to worry about storage, purity, or making charges.
• Easy to buy and redeem through online investment platforms.
• Helps diversify your investment portfolio beyond equity and debt.
• Gold has many times acted as a hedge during periods of market uncertainty.
• Professionally managed by experienced fund managers.
• Suitable for long-term financial planning.
   

Who Should Invest in Gold Mutual Funds?

Gold mutual funds can work well for different investment goals.

They may suit:

• First-time investors looking to add gold to their portfolio.
• Investors who want diversification across different asset classes.
• People who prefer digital investments instead of buying physical gold.
• Long-term investors looking to reduce overall portfolio risk.
• Investors who want the flexibility of SIP investments.

Keep in mind that gold mutual funds do not generate regular income. Their returns mainly depend on changes in gold prices.
 

How to Invest in Gold Mutual Funds

Investing in a gold mutual fund is simple.

1. Complete your KYC process.

2. Choose a gold mutual fund that matches your investment objective.

3. Decide whether to invest through SIP or a lump sum.

4. Complete the investment using your preferred investment platform.

5. Track your investment regularly and review it as part of your overall portfolio.
 

Gold Mutual Fund Basics

Before investing, it helps to know a few important facts.

• These funds mainly invest in Gold ETFs.
• Returns are linked to domestic gold prices.
• They are managed by professional fund managers.
• You can invest without opening a Demat account.
• SIP and lump sum investment options are available.
• Liquidity is generally good as units can be redeemed with the fund house.
   

Types of Gold Mutual Funds

Gold mutual funds are available in different categories.

• Gold Funds of Funds (FoFs)

These funds invest mainly in Gold ETFs. They are the most common type of gold mutual fund available to retail investors.

• International Gold Funds

Some schemes invest in overseas funds that hold gold-related assets or global gold ETFs. Their returns may also be affected by currency movements in addition to gold prices.

Gold Mutual Funds vs Gold ETFs

Gold mutual funds and gold ETFs both are investments in gold, but have some key differences.

Taxation on Gold Mutual Funds

The tax treatment of gold mutual funds depends on your holding period.

Gold mutual funds do not qualify for deductions under Section 80C of the Income Tax Act.

As tax rules may change, it is advisable to check the latest provisions or consult a qualified tax adviser before making investment decisions.

Gold Mutual Funds vs Physical Gold vs Sovereign Gold Bonds

*The Government has discontinued fresh issuances of Sovereign Gold Bonds. Existing bonds continue as per their terms.

What to Check Before Investing

Before choosing a gold mutual fund, consider these points.

• Fund performance across different market conditions.
• Expense ratio.
• Fund house's track record.
• Investment objective.
• Portfolio allocation.
• Your own financial goals and investment horizon.

Do not choose a fund based only on recent returns.
 

How to Monitor Your Gold Mutual Fund Investment

Regular monitoring helps you stay aligned with your financial goals.

• Review your investment every few months.
• Compare the fund's performance with its benchmark.
• Continue your SIP during market fluctuations if it matches your long-term plan.
• Rebalance your portfolio if gold allocation becomes too high or too low.
• Update your investment strategy when your financial goals change.
   

Conclusion

Investing in gold mutual funds is easy and convenient as it allows you to invest in gold without owning physical gold. It will help you diversify your portfolio and ease the process of investment through SIPs and lump sum investment.

Before investing, know the objectives of the fund, its costs, and the prevailing tax laws. Proper timing of the investment and aligning it according to your investment plan can lead you to take sound investment decisions.